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Five Things You Need to Know: We [Heart] 1974


My, how we love the 1970s.


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. We [Heart] 1974

"I think I sort of am guilty of idealizing the seventies in a lot of ways." - Adam Yauch (MCA of the Beastie Boys), to New York Magazine, June 21, 2008

Aren't we all, my friend? The 1970s were grim days, to be sure. Half the country spent their days robbing the other half at knife point in the streets after having their homes burglarized and their gas tanks siphoned. The weekends were for rioting, but no one called them riots back then because the government was worried the very fear of riots would spark still more riots, a vicious circle of Fordian logic that to this day works as the operating principle of mainstream media coverage and law enforcement public relations tactics.

But still, how we love the 1970s. By today's weird standards the 70s were a time of innocence, of naivete, of quaint mistrust. Today that mistrust has been institutionalized, commoditized, and those of us who deal in financial markets spend hours, yes, hours, each day sifting through mountains of economic data that have been stomped, stretched, bullied and twisted by formulas and seasonally adjusted matrices into unrecognizable non sequiturs. The four-month rolling moving average of the year-over-year change is 3.4%. Good luck with that. What does it mean? Let's move along to today's Number Two...

2. The Stealth Bear Market

This barrage of economic non sequiturs has left us immune to any real measure of financial disaster beyond the amount of cash and coin in our pockets. We no longer even notice this process. We accept it and move on. That's one reason financial disasters seem to skate along public consciousness generating only a vague sense of dumbfounded awareness; it's a stealth bear market.

The New York Times tried to spell it out over the weekend - "Battered by Oil, Dow Touches Bear Territory" - but who can be bothered to pay attention to such things when there's wine to be drunk and bill collectors at the door? What does it mean?

What we know is that through Friday the Dow Jones Industrial Average was down 20% from the October peak. But, really, it's worse than that. The average stock in the Dow is off nearly 30%, and some, like American International Group (AIG) and Citigroup (C), are down more than 50%. Few on Main Street have noticed this, or even care anymore, mostly because they're busy pawning jewelery to buy gas and groceries.

Meanwhile, the economic data continues. It's relentless...

3. Breaking Down the Week Ahead...

Tuesday July 1


10:00 ISM Manufacturing: 49.0 cons.
10:00 Construction Spending (m/m): -0.6% cons.
10:00 ISM Prices Paid: 86.0 cons.


Before: STZ, MSM, SMSC



Credit Suisse Group Equities Traders Forum

Wednesday, July 2


7:00 MBA Mortgage Applications: -9.3% prior.

Thursday, July 3


8:30 Change in Nonfarm Payrolls: -50 k cons.
8:30 Unemployment rate: 5.4% cons.
8:30 Change in Manufacturing Payrolls: -30 k cons.
8:30 Average Hourly Earnings (m/m): 0.3% cons.
8:30 Average Weekly Hours: 33.7 cons.
8:30 Initial Jobless Claims: 384 k prior.
8:30 Continuing Claims: 3139 k prior.
10:00 ISM Non-Manufacturing Composite: 51.5 cons.

That's all well and good for the pocket protector crowd, but for the rest of us all that really matters is staying one step ahead of the bill collectors and on top of the mortgage payment. Unfortunately, that's increasingly difficult to do, as Number Four describes...

4. Magnitude of Crisis Dwarfs Homeowner Rescue Bill

As a native Kentuckian, there are two things I know with a deep cultural and regional certainty: the last race on the card at the track is called "The Widowmaker" for a reason, and, never offer up double-or-nothing to a reckless risk freak. I was reminded of these general principles when reading about the mortgage relief program slowly working its way through Congress.

Gambling principles aside, the sad truth about this that proposal is it will only help some 400,000 borrowers. Meanwhile, more than 3,000,000 borrowers are in distress. Incredibly, as the New York Times noted this weekend ("As Bill Evolves, Mortgage Debt Is Snowballing"), there were 2,600,000 loans in trouble when Congress first began considering the issue. So essentially, by helping just 400,000 people, we're right back where we started.

5. Point/Counterpoint: Will the Subprime Rescue Plan Save Homes?


The Subprime Rescue Plan Will Help Save Our Home
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By Richard Dawkins

Thank you Congress, thank you! With news of this subprime rescue plan you and the mortgage industry are proposing, we finally are able to see some welcome relief on the horizon. Why, mortgage lenders everywhere are signing up left and right to endorse the plan. Yes, relief is finally here!

I don't mind telling you, the little missus and I were worried. In 2002 we took out a $500,000 Option ARM mortgage, an adjustable rate mortgage with the option of making interest only payments for the first five years with a five-year incremental step-up in payments.

Everything was looking fine for the first five years. Our initial monthly payment on the Option ARM mortgage was around $1,600. Over the past five years it has slowly crept up to $2100. That extra $500 is beginning to hurt. In April, however, our mortgage lender sent us a note telling us what the new payment is going to be. Prepare to grab the seat of your pants: $4,100!!!! That's right, $4,100!!! Who can afford a payment like that?!?!

Even worse, thanks to what they call "negative amortization," whatever that means, they say our original loan balance of $500,000 is now $535,000!!! How did that happen?!?! Obviously we were worried. That kind of mortgage payment would ruin us. We'd be forced to sell... and that's assuming we could even find a buyer.

Well, thanks to this homeowner rescue plan we're back in business! Our refinancing papers are already in. We're going to take down a fixed-rate mortgage this time at a payment we can handle. Looks like things really do work out in the end, just like those mortgage ads say. My wife and I can sleep at night again. Thank you Congress!


Mr. Dawkins, I'm Afraid There's a Little Problem With Your Refinancing Application

By Darren Salisbury, Mortgage Loan Officer

Is this Robert Dawkins? I meant Richard, sorry. Richard Dawkins at 237511 Magnolia Stone Haven Wintergardengreen Court Acres Estates? Ok, good. Wow, uh... Mr. Dawkins, I, uh, I hate to be the bearer of bad news here, but there seems to be a slight problem, with, ah, with your refinancing application. No, no we got your check for the $500 processing fee, no problem there. That's not refundable, by the way, just want to be clear on that. Right. Yeah, it, uh, just kind of looks like we're not going to be able to approve this refinancing package.

Yes, I'm sure. Whoa, absolutely, I agree $4,100 a month is way, way too high for a house in, ah, where are you? Right, Magnolia Stone Haven Wintergardengreen Court Acres Estates.

Hey, did the developer ever finish the community pool and recreation facilities there? Wow, I'm surprised at that. They were the same developers as Crystal Glen Squire Thirstwood Cove Hammock Lake and they finished the community pool and rec center on that development six or eight months before they abandoned it. Well, maybe they'll come back and finish it. Would certainly help the resale value.

Yes, I checked on that and unfortunately you're outside the GSE conventional guidelines and, look, Fannie Mae (FNM) and Freddie Mac (FRE) have been a little reluctant to step up to the plate on these jumbo loans. Have you tried taking in some boarders, maybe raising some cash by renting out the east wing? Ok, just a thought. Well, good luck with everything. If it gets down to the wire, give me a ring back. My brother-in-law handles foreclosure auctions.

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