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House Prices Continue to Fall


Guest misterstockwell
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Should make you wonder about the adequacy of the big bank's reserves.

 

 

Why?  The balance of a mortgage with a 25 year amortization declines by about 3% in the first year of the mortgage and a higher percentage in subsequent years as the principal progressively declines.  If the market value of housing declines by roughly the same percentage over the course of a year (ie, 3%), is it reasonable to believe that bank reserves would be any more or less adequate at the end of the year?

 

Or am I missing something obvious (wouldn't be the first time  ::))?

 

 

SJ

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Guest ValueCarl

Prices are hardly reflective of where the FRAUD began, circa 1999 when Rubin and Clinton along with Mr. Mgoo advising Congress's final blessing had repealed Glass-Steagall. 

 

That's where we should be heading at a minimum, and these criminal banks including CITI,  BAC but most importanly, GOLDMAN SUCKS, must be forced to pay for their prior iniquities.

 

My shoe shine boy, just an Average Joe, has told me this!  >:(

 

http://www.rollingstone.com/politics/blogs/taibblog/federal-judge-pimp-slaps-the-sec-over-citigroup-settlement-20111129

 

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Prices are hardly reflective of where the FRAUD began, circa 1999 when Rubin and Clinton along with Mr. Mgoo advising Congress's final blessing had repealed Glass-Steagall. 

 

That's where we should be heading at a minimum, and these criminal banks including CITI,  BAC but most importanly, GOLDMAN SUCKS, must be forced to pay for their prior iniquities.

 

My shoe shine boy, just an Average Joe, has told me this!  >:(

 

http://www.rollingstone.com/politics/blogs/taibblog/federal-judge-pimp-slaps-the-sec-over-citigroup-settlement-20111129

 

 

Just because you're paranoid doesn't mean they aren't out to get you, right?  Don't forget that if you put foil around your head the government can't read your thoughts.

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Guest ValueCarl

Yes, Dr. Byrne and I are two peas in a pod paranoid as ever. In his case, they go to Canada to shut his freedom of speech rights down, however. Not until I see the criminals at the core of "The Crime of this Century" being hung like at "The Nuremberg Trials" will I be satisfied. Until then, enjoy your house prices and banks stocks going DOWN! My shoe shine boys are the smartest damn men you have ever seen spit shining!  >:(   

 

http://mindbodypolitic.com/2011/10/23/why-was-deep-capture-shut-down/

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...Until then, enjoy your house prices and banks stocks going DOWN! My shoe shine boys are the smartest damn men you have ever seen spit shining!  >:(   

 

 

Carl, last time I checked LVLT was down too!  Maybe the shoe shine boys should stick to shoe shining.  ;D  Cheers!

 

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Guest ValueCarl

Mr. Parsad, if you turn this thread into a debate about LVLT, who is going to ban you to The Island of Misfit Toys?  :o

 

As a matter of fact, if you do keep it up, you might force me to sink yet another median U.S. home price into this pig at the trough with roots to Omaha, where men like Buffett and Munger chew on straw together from time to time. 

 

You can do the five year, and all the closer options including ONE DAY as PROOF that Big (3) is out performing that dubious bank with Italian roots(BAC), as well as stealth dirty pool loans representing toxic matter from Countrywide, along with its founding criminal of Italian decent who should be experiencing poverty minimally as opposed to living the life of the rich and INFAMOUS inside of Santa Barbara, CA mansions!   

 

http://finance.yahoo.com/q/bc?s=LVLT&t=1y&l=on&z=l&q=l&c=bac   

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Should make you wonder about the adequacy of the big bank's reserves.

 

 

Why?  The balance of a mortgage with a 25 year amortization declines by about 3% in the first year of the mortgage and a higher percentage in subsequent years as the principal progressively declines.  If the market value of housing declines by roughly the same percentage over the course of a year (ie, 3%), is it reasonable to believe that bank reserves would be any more or less adequate at the end of the year?

 

Or am I missing something obvious (wouldn't be the first time  ::))?

 

 

SJ

 

Not as high as 3% in the first year, and of course it's very interest rate sensitive.  The lower the interest rate, the faster the principle pay-down in the early years.  Of course this is why it's important to have low mortgage rates for refinancing -- while it doesn't change the payment as much as one would think at first impulse, it does increase deleveraging pace.  And that helps cushion the banks from further real estate decline.  So not only does it increase cash flow to the consumer, it also helps the banks better survive declines in asset values.

 

Interest rate 4%:

Principle on a 25 year amortization will decline by 2.37% over the course of the first year.

 

Interest rate 8%:

Principle on a 25 year amortization will decline by 1.30% over the course of the first year.

 

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Why?  The balance of a mortgage with a 25 year amortization declines by about 3% in the first year of the mortgage and a higher percentage in subsequent years as the principal progressively declines.  If the market value of housing declines by roughly the same percentage over the course of a year (ie, 3%), is it reasonable to believe that bank reserves would be any more or less adequate at the end of the year?

 

Or am I missing something obvious (wouldn't be the first time  )?

 

 

SJ

 

If you review what happened in the oil bust in the 1980 in the oil states (Alaska, Texas, Oklahoma & Louisana), the weak banks failed and that dumped houses on the market which then lowere the value of the collateral of the other banks, then the marginal banks started failing and dumping house (collateral) which lowered the values much more until even the strong banks started to get very worried.  For awhile you could buy houses for less than the land cost and the bank threw in a house as a bonus.

 

That's why I like local small banks as I have a better idea if there reserves allow for the "100 year flood" - with the big guys I have no idea of the values.

 

 

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Why?  The balance of a mortgage with a 25 year amortization declines by about 3% in the first year of the mortgage and a higher percentage in subsequent years as the principal progressively declines.  If the market value of housing declines by roughly the same percentage over the course of a year (ie, 3%), is it reasonable to believe that bank reserves would be any more or less adequate at the end of the year?

 

Or am I missing something obvious (wouldn't be the first time  )?

 

 

SJ

 

If you review what happened in the oil bust in the 1980 in the oil states (Alaska, Texas, Oklahoma & Louisana), the weak banks failed and that dumped houses on the market which then lowere the value of the collateral of the other banks, then the marginal banks started failing and dumping house (collateral) which lowered the values much more until even the strong banks started to get very worried.  For awhile you could buy houses for less than the land cost and the bank threw in a house as a bonus.

 

That's why I like local small banks as I have a better idea if there reserves allow for the "100 year flood" - with the big guys I have no idea of the values.

 

got any goods books you can recommend to learn more about the 1980 oil bust ?

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That's why I like local small banks as I have a better idea if there reserves allow for the "100 year flood" - with the big guys I have no idea of the values.

 

Do local small banks face higher severity floods?  Meaning, didn't the local small banks in the oil patch fare the worst vs the large and geographically diversified?

 

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Do local small banks face higher severity floods?  Meaning, didn't the local small banks in the oil patch fare the worst vs the large and geographically diversified?

 

I think when looking at banks, it's really a matter of trade offs.

 

A big bank can be great because you have the benefits of geographical diversification. A bank like Wells Fargo can generate income from all over the US which can be used to pay for losses in states that were particularly hurt by the housing crisis.

 

At the same time though, you can sometimes find small banks that are really conservatively run by bright capital allocators. These are going to be easier to understand but the trade off is you'll have to really know the geography well. It becomes a matter of whether or not they can grow loans at reasonable prices, which will usually be a function of the competition for overall loans and the macro within that market.

 

I see some small banks that trade at heavy discounts to TBV. The fact of the matter is that most of those guys are simply going to trade sideways. Their geographies are weak/to negative, with a lack of real loan demand and they are too small and removed from branch networks to really make themselves worth of acquisitions. You see this with a lot of thrifts, especially on the smaller micro/nano-cap side of the market. I don't really think these are great buys.

 

These days I find myself more sympathetic to big US banks that are cheap. Position sizing and overall portfolio diversification should limit the effects of their black box nature.

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