Sell in May and go Away?

i agree with you however i sold out about a month ago feeling the same way and i'm kicking myself now. I guess the consensus is that the systemic risk has been taken into account and the bottom's the bottom. I sold out however thinking about the hundreds billions in commerical mezzannes that are scheduled to expire toward the end of the year. Who knows though, nothing makes sense anymore, people are just getting tired of the doom and gloom and are fedup with the non-existant returns on treasuries.

hey, you stole the title from Noah at UD. You owe him $2 million in roaylty fees, you copyright infringer. LOL

lol -- Noah of Noah's arc, perhaps....

Rally still seems oversold to me --
I tend to hear the bear viewpoint more clearly....

It Pays to Listen to Meredith Whitney
By Ian Cooper | Tuesday, May 19th, 2009

We've always been a fan of Meredith Whitney. . .
Not just because she's agreed with everything we've said, but because she tells it the way it is.
And we're happy to see Meredith Whitney doesn't drink from the same Kool-Aid the banks do. Nope. She tells it the way it is, destroying the idea that the financials rally is real.
"They were overdone all the way into this rally. What happened was the government — I call this the great government momentum trade — the government enabled the banks to have better than expected, better than even the banks could organically deliver, first-quarter earnings. That looks like it could continue into the second-quarter and the third-quarter. The banks rallied from well below tangible book multiples to almost two times tangible book multiples. . . the underlying core earnings power of these banks is negligible," she says.
Worse, this will not be the last time banks need to raise capital. And she believes bank earnings in 2010-2011 will be below consensus estimates.
But if you ask Bill Miller, he'll tell you she's dead wrong. Miller believes "financials have the biggest potential to outperform other stocks because of how far they've fallen in the worst bear market since the Great Depression. . ."
Miller also said he expects U.S. housing prices to stabilize "this year and for the economy to perform better than Federal Reserve projections." He also believes the equity markets will rise 20% to 30% in 2009 and that his fund will rebound. (But if he continues to invest in companies like AIG and Freddie Mac, or make any other massive bets in companies that crumbled, the fund may not improve any time soon.)
Who do we agree with?
Whitney. . . and for reasons we've spoken about here in Wealth Daily: crumbling commercial real estate and coming Option ARM resets.
Investors may disagree with us, too, as they disagree with Whitney. But we are the same analysts who called for the downfall of subprime and its spillover into the greater economy, the downfall of financials, the Treasuries, the British economy, and even the breakdown of our own economy, which is struggling to come back.
But our economy will not come back until at least 2012, in our opinion (mark these words). And that's because of commercial real estate, mounting foreclosures, higher unemployment figures, and more pain in residential real estate. . .
Commercial Real Estate Problems: "Have the Potential to Intensify"
Even as banks deal with rising foreclosures and defaults, lenders have something else to worry about — quick rising tides of potential losses from commercial real estate. These losses could easily stretech into the billions, as delinquencies and defaults on office buildings, retail buildings, and hotels have more than doubled in just six months.
Says the Associated Press, "While homeowners are defaulting at almost four times the rate of commercial landlords, the sudden spike in late payments has many industry insiders worried about the collateral threat to the economy and financial sytem. Nearly $73 billion worth of commercial real estate loans are in some level of financial distress, according to Real Capital Analytics."
And its risk to the greater economy is largely unknown, but it'll be bad. . . real bad. Frighteningly, its impact is likely underestimated in the government's bogus stress test.
Worse, about $271 billion worth of commercial real estate loans are coming due this year alone. That's part of the reason why General Growth Properties dug itself an early grave.
Yep, the commercial real estate market is just beginning to mirror the 2007 residential real estate market. The meltdowns at some of the biggest commercial REITs will be another blow to a financial system teetering on the brink of disaster. And nothing may be able to stop the slide.
Even Jamie Dimon is bearish, saying the bank industry should brace itself for "rapidly rising" losses related to commercial real estate. "In general, the losses [in commercial real estate] are going up, and I think if you talk about the whole system. . . you are going to see rapidly rising charge-offs in real estate loans."
Even Dallas Fed chief Richard Fisher believes "problems in the financial industry and commercial real estate have the potential to intensify. . ."
Additionally, vacancies in commercial properties are skyrocketing, and millions of square feet of commercial real estate are currently under construction and ready to flood the market. About $171 billion in loans backed by offices, shopping centers, hotels, and other buildings are coming due this year, according to Union Tribune. Experts are fearful there may not be enough "credit capacity in the system to refinance them."

markets can run and fall further than the underlying fundamentals indicate. we have plenty of recent examples of that(housing, internet stocks). eventually fundamentals win out. the key is to time the markets to enter and exit close to bottoms and tops. many people will tell you markets cannot be timed. i disagree. the last decade's booms and busts will create plenty of market timers. the "buy and hold" strategy, which is really just abdication of one's responsibility for their fiscal health, is dead.

as for the current market run, it still has legs. things are getting choppy but buyers keep stepping up. the macro-economic picture is still grim and stock prices may yet reflect that. the only way to time a turn is to use charting or technical analysis. price, volume and breadth and sentiment indicators can guide you in making these decisions. the beauty of trading is that the fees are so low that you can exit positions and re-enter without racking up big fees. so if you mis-time the market you can always re-enter.

the key to trading is to have a plan that you follow, strip emotions out of the equation(extremely difficult) and admit when you're wrong. never take anyone else's advice blindly. study technical analysis to determine an unbiased view of the markets.

cfranch -- low vix, low volume, oversold indicators via charts.... mixed messages.

Does anyone have the numbers on option ARMs in NYC specifically? And their recast schedules? I didn't see a lot of people going with option ARMs during the bubble, but my market is fairly provincial.
Tina
(Brooklyn broker)

fox: i take that to mean the market is climbing a wall of worry. we've got juice left in this rally.

but another dip sure to come...?

Tina -- I know a lot of people who took 1-3 yr ARMS, and interest only -- all have subsequently refinanced to 30 yr or 15 yr fixed given the rates...

dips always come but as long as they do not violate my stops or change the trend of the market i stay long.

stocks are irrational and still trading down 40% from peak. Bear rallies have a tendency to be fierce, but I agree, this is one of the fiercest ones I have ever seen, and I been trading for a while now.

Plus, we needed banks to conduct stock offerings as the stock market is the current vehicle to recapitalize our banks. You need a rally to instill confidence to do this. So, here we are!

Shorts are getting murdered, and yes, I sold my longs like 4 weeks ago, killing myself for doing so, and got short like 2 1/2 weeks ago and giving back gains here. So full disclosure there. Im only long gold at this point, and ultrashorts that have been cloooobbbbbbeeeeerrrrred!

higher long term yields are coming (the $1M question is when, but obama's spending and the entitlements make it a given). they'll put the final nail on the stock mkt and obviously on the treasuries bubble. and yes, also on real estate. bottom line, it's definitely not a nice time to be an income investor.

I'm less concerned about the regular ARMs or interest only (which are fairly common) than the negative amortization loans. I'm thinking those are the ones that will lead to foreclosure - but I just didn't see many of them here. (Some people with ARMs are seeing them reset at lower rates than they had initially.)
Tina
(Brooklyn broker)

tina, job loss will take homeowners by the hand to the bankruptcy court. regardless of whether they have a neg amort or not. most of those that bought since 2003 are just too overextended. think about how many 2 income households that bought lately could pay their bills if only one losses their income. it only takes 1 in many cases.

not only that but the recasts

"“I’m advocating 6 percent inflation for at least a couple of years,” says Rogoff, 56, who’s now a professor at Harvard University. “It would ameliorate the debt bomb and help us work through the deleveraging process.” "

wow, what a genius. just give the right incentives for absolutely everybody to gamble the next time around. this guy is part of the reason why hard currencies always make a come back. there's no discipline to avoid debasing when the day of the reckoning comes.

Of course job loss will take people to bankruptcy. I'm not arguing any macro points here. My question was specific to a type of loan and the rates/dates of origination here in New York.
From the OP:
"Who do we agree with?
Whitney. . . and for reasons we've spoken about here in Wealth Daily: crumbling commercial real estate and coming Option ARM resets. "

Crumbling commercial real estate? check. Option ARM resets in NYC (and recasts, obvs Noah)? Could be brutal. Could be virtually non-existent. I don't know.

Tina
(Brooklyn broker)

recast schedule as per credit suisse

http://4.bp.blogspot.com/_pMscxxELHEg/SgSw4hszaMI/AAAAAAAAFNo/DNjcQ8ypQO4/s1600-h/CreditSuisse.jpg

http://3.bp.blogspot.com/_pMscxxELHEg/SgSvrDg8r9I/AAAAAAAAFNg/yq6Cj68MOk4/s1600-h/BusinessWeekOptionARM.jpg

Count me in as an ARM holder who just got LOWERED for the next 12 months. Mine was a regular ARM with principal pay down.

manhattanfox, not a whole hell of a lot of prime in there. unsecuritized ARMs are just those retained by the banks? any way, do you know, what type of product these were, or were they almost always the garden-variety ARM?

also, anyone who COULD has refinanced the ARMs. Those who are in a spot of trouble, or who have jumbos, most likely did not do so. Those can reset at any time in the future when and if rates go up, potentially creating a third or fourth wave of default issues.

What is this recast you all keep talking about?

here's a great discussion of the ARM issue, and UWSer explains the recast issue.

http://www.calculatedriskblog.com/2007/03/tanta-negative-amortization-for.html

not UWSer explains, UWSer it explains. grammar, commas, missing words.

not my analysis -- credit suisse and businessweek

MF, i know. just wondered if the accompanying notes specified, and if you'd seen them. i've seen that chart before, CR often has it up, just have never seen the whole report. don't even know if it's available for general consumption.

Here is the article that included the charts...

Loan Reset / Recast Schedule
by CalculatedRisk on 5/08/2009 06:13:00 PM
Before reading, please see Tanta's: Reset Vs. Recast, Or Why Charts Don't Match

"Reset" refers to a rate change. "Recast" refers to a payment change.
Here are two Credit Suisse charts:

Click on image for larger graph in new window.

The first chart is from Business Week in April: Good News: Option ARM Resets Delayed

The reset and recast confusion continues! The x-axis is labeled "months to 1st reset", but the notes to the graph says: "estimated recast schedule".

And here is more from a Credit Suisse research report released in February (no link):

It appears Credit Suisse is using recast dates for Option ARMs and reset dates for all other loans. Resets are not a huge problem with low interest rates, but recasts could be significant.

Looking at these charts it would be easy to conclude that the recast problem last through 2012. However there is a difference between the original recast date, and the actual recast date - because negatively amortizing loans hit the recast ceiling earlier than the original forecast. I suspect the peak in recasts for Option ARMs will be in 2010.

Alrighty, I'm dense or had too much wine tonight. Why if my rate goes down would my payment go up with a recast? My principal is going down.

UWSer, the Option ARMs were also known as "pick-a-pay" or "negative-amortizing" - i.e., the buyer was not paying off the principal, just the interest, and sometimes not even all of the interest. Noah posted a good analysis of the problem on urbandigs.com:

"LOAN RECAST - when your loan is re-calculated with the new principal amount, to fully amortize within the previously agreed upon term; a.k.a, re-amortization of outstanding principal at the fully indexed rate. When the loan is recast, the payment required to fully amortize the loan over the remaining term becomes the new minimum payment, and the payment cap no longer applies."

http://www.urbandigs.com/2009/02/you_worry_about_resets_im_worr.html

To follow up, Noah quotes from Rolfe Winkler at OptionArmageddon.com (I read this blog inconsistently)

"When recast happens, the interest rates may or may not be more favorable but all of a sudden you're forced to make a FULLY amortizing payment on a loan balance that's 15-25% larger than the one you started with!

90% of Option ARM borrowers make the minimum payment, which doesn't even cover interest. Regardless of where interest rates are, the recast to a fully amortizing payment will be much higher than the minimum payment the borrower has been making."

Basically, anyone who could get out of these things could, because they are the definition of toxic waste. A lot of borrowers could not refi because they are too far underwater. At this point it is only a matter of time before they default. Notices of default are skyrocketing again in California.

How many NYers do you think have these types of mortgages? Seems nutty, but what do I know. I was screaming at the NYTimes editor who is losing his home in Silver Springs, MD.

because you wouldn't have a recast. pay option arms are usually negative amortization products. they allow people to pay less than interest only, increasing principal owed until it hits a certain point (110% of original principal, for example) at which point the loan become a whole different beast, not just dependent on LIBOR for rate settings.

your payments could go up in the future, if rates don't behave, but nothing like the recasts that will occur for pay-option ARMs.

I doubt very many NYers have them. Maybe some condo buildings, but even there I wouldn't bet many. Coops wouldn't allow such financing to get through the door.

These products were never supposed to be more than bridge loans while waiting for property prices to rise. They made sense only in the context of rising home prices, because you could refi out of them before trouble hit. Then prices declined and you couldn't do that any more; that was when they became time bombs.

UWS - I was thinking the same thing about the NYTimes editor... dummass.

aboutready: do you have a source for "pay option arms are usually negative amortization products." tina24 says she didn't see many here.

"pay option arms are usually negative amortization products." by definition they are if the borrower chooses to pay the minimum each month. it was designed to give flexibility for those with bonuses making up for most of their compensation. the idea was that once the bonus came, they will use it mostly to pay down principal. if they did this consistently, then they will not face huge recasts. but how many people did this?

Admin, we shall begin to discover who's been swimming naked in the next few months, it seems.

Because I do believe "New York is different" (otherwise why live here?) I would love to see some wonktastic local blogger deliver the numbers on NYC alone. Not because I think we're immune, but because I think we're better than other people. Like if that Times dude had lived in NYC he wouldn't be in the mess he's in. Right? Did you see that guy's house?
Although I'm gonna look pretty stupid when it turns out all those Irish carpenters bought their investment properties with option ARMs.
Tina
(Brooklyn broker)

Tina, I love your attitude!

Does anyone know if there is publicly available info on types of mortgages purchased in NYC 2000-present?

"I think we're better than other people". I do believe "New York is different" (otherwise why live here?)

wow. don't subscribe. i have no need for establishing pecking orders according to zip codes. but then, i'm not a realtor.

Its not about establishing pecking order. Those of us who aren't native New Yorkers made the decision to come here. In many cases we were drawn to something we found in NY that we didn't find elsewhere. I would hope people in other places think their city/town is the best, if not they should move. WRT the RE market the question is how many people beleive NY is the best place to live and how much $ do those people have.

I think Tina is being a bit tongue in cheek, FWIW.

Oh admin, I'm joking. We're not better than ALL other people. (But we are ALL better than that Times dude. Seriously - that guy's house was fugly. And his wife was a meanie). I was just making a point about the relative applicability of the data to our own quirky little market.

But if you truly "have no need for establishing pecking orders according to zip codes" then I don't really understand why you would spend any time on Streeteasy.

Tina
(Brooklyn broker)

SE and it's fans are fun. didn't know you were joking, i have low-to-no tolerance for the pecking order game people play, just was born allergic to it. i know! i shouldn't be living in usa given my condition lol.

also to be fair, i already reproduced myself. that also helps to have the allergy. just cause i'm done.

down today.... if gm files a furtehr decline? CA problems?

miners, oil cos. and selected shorts this week. also take a look at HUN. a little late to that game but still $ on the table. best,

RED everywhere