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Five Things You Need to Know When Somebody Yells "Play Free Bird!": That Smell; Call Me the Breeze; Don't Ask Me No Questions; Gimme Three Steps; Saturday Night Special


What you need to know (and what it means)!


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

1. That Smell

Ooh, ooh that smell. Can't you smell that smell? Oooh, ooh, that smell. The smell of death surrounds you. Sorry. It must be all the Lynyrd Skynyrd we've been listening to lately. (Editor's Note: pronounced 'lĕh-'nérd 'skin-'nérd). Because that smell is clearly emanating from this morning's Durable Goods Odors.

  • There's nothing really unexpected here. Durable Goods Orders were weak. Everyone knew they would be, even if they wouldn't really allow themselves to believe it.
  • January's "shocking" 8.7% slide was revised even lower, to a 9.3% decline.
  • Excluding transportation durables came in at -0.1% versus 1.8% expected.
  • That means a decline in capital investment, which we've been told for over a year now can be expected to pick up any consumer slack.
  • Say you'll be alright come tomorrow?
  • But tomorrow might not be here for you.

2. Call Me the Breeze

Federal Reserve Chairman Ben "Call Me the Breeze" Bernanke is scheduled to speak before the Joint Economic Committee of Congress on his economic outlook subprime loans right about now. Somehow, we were able to obtain the highlights of his address to the JEC.

  • Mr. Chairman and members of the Committee, call me the breeze. I keep blowin' down the road. Well now the rest of the Fed they call me the breeze, 'cause I keep blowin' down the road. I ain't got me no deflation. I don't worry 'bout slow growth. 1).jpg" width="226" align="right" />
  • If we smooth through the recent quarter-to-quarter variations, we see ain't not change in the weather, ain't no change in me. Well there ain't no change in the weather, and ain't no change in me. I ain't hidin' any data, no data's hidin' from me. Oh, that's the way it's supposed to be.
  • Based on the information in hand, I got that green light baby. This joint will keep movin' on. Well I got that green light baby, I got to keep movin' on. I might go out to California, see them foreclosures, I don't know.
  • Well I dig you politicians, makes me feel right at home. Well now I dig you politicians, makes me feel right at home. We talk in circles, innuendos, obfuscations all day long.
  • With regard to monetary policy, well now they call me the breeze, I keep blowin' down the road. Well now they call me the breeze, I keep blowin' down the road. I ain't got me no deflation. I don't worry 'bout slow growth.

3. Don't Ask Me No Questions

And I won't tell you no lies. After all, I'm just trying to get a piece of the American pie, i.e. an interest-only 30-year adjustable-rate-mortgage with a balloon.

  • Last year subprime mortgages accounted for about 20% of the $3 trillion mortgages written in the U.S.
  • And 60% of those subprime mortgages required virtually no documentation.
  • Meanwhile, tighter lending standards as subprime lenders face increasing regulatory scrutiny are expected by some to cut the subprime mortgage market in half and Alt-A loans by 25% this year.
  • Man, that's bad news for the American Dream of homeownership, no?
  • No, apparently it's not bad news at all.
  • The non-partisan (Editor's Note: "non-partisan" is a media codeword meaning, literally, "anti-establishment," which makes any study, report or documentary evidence provided by said "non-partisan" organization or institution eligible for immediate, out-of-hand dismissal by politicians, since they are, by definition, "partisan.") Center for Responsible Lending has updated their analysis of projected home foreclosures to include subprime mortgage originations in the fourth quarter of 2006, and concluded that the total number of projected foreclosures in the next 12 months has increased to 2.4 million, a number sharply at odds with the industry's widely-quoted 2007 foreclosure estimates ranging from 500,000 to 1.5 million.
  • Moreover, the CRL says, since there were only about 1.4 million first-time home-buyers between 1998 and 2006 who purchased their homes with subprime mortgages, the projected foreclosures will lead to a net homeownership loss of nearly 1 million.
  • "In fact," the CRL says, "a net homeownership loss occurs in subprime loans made in every one of the past nine years."
  • Why the net loss?
  • First, most subprime loans are not used for buying homes, but for refinancing existing mortgages.
  • The CRL says that even in 2006 - when subprime loans accounted for about 60% of all mortgages - refinance loans accounted for more than half of all subprime loans.
  • Second, the CRL estimates that 15.6% of all subprime loans originated since 1998 either have ended or will end in foreclosure and the loss of homeownership.

4. Gimme Three Steps

Speaking of foreclosures. With tens of thousands of Massachusetts homeowners facing foreclosure, Secretary of State William Galvin yesterday said he will propose a sweeping revamp of the state's foreclosure process, giving the distressed homeowners three steps toward the door, the Boston Herald reported. The distressed homeowners, meanwhile, indicated that, if given three steps, given three steps mister, you'll never see them no more.

  • Massachusetts Secretary of State William Galvin said yesterday he is preparing a proposal that could give local courts more of a say in the foreclosure process.
  • "We are about to have a whole new wave of homeless people," Galvin said, according to the Herald. "What are we going to do about it?"
  • Last year nearly 20,000 homeowners across the state faced foreclosure.
  • Galvin said he will propose a sweeping revamp of the state's foreclosure process while at a State House hearing on measures to crack down on predatory lending, the newspaper said.
  • Current proposals being discussed in Boston include a $10 million bailout fund for distressed homeowners and a newly required licensing process for lenders.
  • Meanwhile, other states are getting in on the bailout action too.
  • The Ohio Housing Finance Agency will issue $100 million in taxable municipal bonds in April as part of a refinancing program to help homeowners faced with foreclosure.
  • Maryland already has a program in place.
  • Virginia and Rhode Island are reportedly developing similar programs.
  • And Colorado, California, Washington and Wisconsin are reportedly looking into the details of these refinancing assistance programs.
  • But don't worry. 2.4 million foreclosures. Widespread calls for government bailouts. The subprime problems are well contained.

5. Saturday Night Special

I was scanning some charts that hit our technical "breakout" screen yesterday and noticed something a little unnerving: a small little stock named Boots & Coots International Well (WEL) has broken out. Why is that unnerving? Well, when Boots & Coots breaks out, it usually means Big Jim's been drinkin' whiskey and playin' poker on a losin' night. So, pretty soon Big Jim starts a thinkin', somebody's been cheatin' and lyin'. So Big Jim commences to fightin' (Editor's Note: I wouldn't tell you no lie). And Big Jim done grab his pistol, shot his friend right between the eyes.

  • And that's when they call Boots & Coots in to clean up the mess.
  • Boots & Coots' principal activity, see, is to respond and control oil and gas well emergencies.
  • Why is that unnerving? Let's go back to March 19, 2003. Boots & Coots, a company on the brink of bankruptcy at that time, had just finished a week where its stock shot up 250%. Yes. 250%.
  • Why? "It appears that investors are hoping that the company will do major business if Iraq sets its oil fields on fire once war starts," CNN Money reported at the time.
  • Take a look at this chart of good ol' Boots & Coots from the first quarter of 2003. Bankruptcy? Hell no! Not when there's a war on!
  • Now, take a look at this unnerving current chart of Boots & Coots.
  • It's a Saturday night special.
  • Got a barrel thats blue and cold.
  • Ain't no good for nothin'.
  • But put a man six feet in a hole.
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