Thestreet.com is reporting that today, October 9th, 2007, marks the fifth anniversary of the current bull market. It was five years ago to the day when the major US market indices reached their lowest point after the 2000-2002 slide.

Unless you own one of a handful of funds that bet against the market, the past half decade has been unusually rewarding. The rewards for those holding emerging market funds — especially those focused on Latin America — have been particularly munificent.

For a significant percentage of emerging markets funds, every dollar of value in the funds five years ago is now worth more than $5. And for holders of some Latin American funds, the payoff for every dollar in their respective funds in late 2002 is now approaching $10.

The author of thestreet.com article warns that the seemingly high returns must be viewed within context:

Although the rewards for the past five years might seem to be super-sized, they must be viewed in the context of the two-year market implosion that preceded the current bull run.

From its previous all-time high in March of 2000, half the value of the S&P 500 evaporated — 49.15%, to be exact — by the time the broad-based index bottomed on Oct. 9 of 2002. The then high-flying Nasdaq composite crumbled 77.89% from its 2000 peak to its 2002 trough.

While a 15,000 DOW may just be around the corner, let’s not forget that we have many different economic factors to consider this time around. During the last bull run, terms like “subprime mess, leveraged buyout, credit crunch, and mortgage meltdown” were hardly mentioned if at all. Many economists are confident that the United States economy is strong enough to survive any bumps that may be down the road, though it seems that all signs indicate consumer spending has slowed significantly which is sure to have some impact.

Financial Market, Economy, Stock Market | No Comments »

According to CNN, FDIC chairman Sheila Bair is suggesting that adjustable mortgage rates be frozen to prevent more foreclosures.

“Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it,” Federal Deposit Insurance Corp. Chairman Sheila Bair said in prepared remarks at an investor’s conference.

Adjustable rate mortgages involve a lot of risk, both to the borrow and investors. The idea is that the initial rate is lower than a comparable fixed rate mortgage, and any increase in interest rates would result in a rate increase of the ARM, offsetting the risk of making the initial mortgage. They seemed like a good idea at the time since fed rates were low, and they may have been a good borrowing option for short term borrowers, home flippers, of borrowers oblivious to the fact that rates may rise one day in the near future. By freezing the adjustable rate, this essentially rewards the borrowers by giving them a ‘get out of jail free’ card and preventing them from facing future rate increases. This also undermines the sound financial decisions that millions of people have made; the decision to NOT take on a risky loan that you’re not sure you can afford in the future.

Actions like this would send the message that it’s OK to get in over your head financially. Along with many other bailout ideas being thrown around, this does nothing to discourage anyone (lenders, borrowers, investors, etc.) from making these same mistakes in the future. It’s just like gambling where if you win, you get to keep your earnings, but if you lose then you don’t have to pay.

Investing, Real Estate | No Comments »

Banks do fail, which is exactly what happened today to Miami Valley Bank in Ohio.

The Ohio Superintendent of Financial Institutions and the Federal Deposit Insurance Corp. announced the $86.7 million Miami Valley Bank’s closing and the transfer of its insured deposits to The Citizens Banking Co., of Sandusky, Ohio. TheStreet.com Ratings provided advance notice of Miami Valley Bank’s weak condition, as its rating was downgraded to an E- (very weak financial strength) in June 2007.

Like with last week’s failure of NetBank, formerly a unit of NetBank Inc., the Lakeview, Ohio-based Miami Valley customers with deposits exceeding FDIC insurance limits are on the hook. At the time it was closed down, Miami Valley Bank had about $14 million in uninsured deposits, in 269 accounts.

Folks, no matter how big or small your bank is, keep your accounts within the FDIC limits! You might have to wait to get your money, but it’s better than not getting anything back at all. Let’s see if we can find out what the major cause of their doom was:

After showing a steady rise in nonperforming assets, which comprised 3.27% of total assets as of Dec. 31, 2006, things really got out of hand in the first quarter. Nonperformers shot up to 12.80% of total assets, an amazingly high figure for a very small bank specializing in residential mortgage lending.

It appears that too many eggs were placed in one basket, and in this unfortunate incident that basket was residential mortgage lending. I’m no financial expert, but the signs were there even back in 2002 that something unusual and unsustainable was well underway. The bubblicious party was too good not to participate in (even for an institution like a bank), and it seems there was a lot of Kool-Aid going around. Drinking is Believing!

Financial Market, Kool-Aid | No Comments »

CNN is reporting that in the month of September, Layoffs in the housing sector accounted for 37 percent of all job cuts.

Housing-related layoffs totaled 26,465 in September, while overall layoffs for the month totaled 71,739, according to Challenger, Gray & Christmas. The consulting firm considers mortgage lenders, construction companies and real estate firms the industries that make up the housing-related sector.

Challenger said declining home prices and an increase in delinquencies and defaults among borrowers has wreaked havoc on the real estate market this year, especially in the past couple of months.

Increasing delinquencies? I thought the mortgage mess was contained? Just keep drinking the Kool-Aid and pretend that none of this is happening. In fact, now may be a better time than ever to buy a house!

Honestly, I do feel bad for the legitimate people in the business who weren’t taking advantage of anyone and have lost their jobs. The sad part is the honest ones were probably those to lose their jobs first for not meeting targets/quotas.

Kool-Aid, Real Estate | No Comments »