WC Varones


For the record

It's impossible to make a bad road movie. Name one. I dare you.

June Critical Mass

Beautiful weather, but only an average crowd. First down market street, then south of Market winding up at the ball park where a Giants game was on. Hit a dead end, then came up 3rd for some more SoMa chenanigans. Through the Tenderloin, around Civic Center, then up Franklin and then through the projects to Alamo Square.

This guy should get on a bicycle:

Rounding the corner at Alamo Square:

On the way to Critical Mass

On the way to Critical Mass, I saw the trekkies waiting to buy iPhones:

... and that was around the block. Here's what the front of the Apple store looked like:

This lady kept honking because she didn't like me taking pictures of the iPhone crowds. I guess she didn't like me taking a picture of her either:

Total unmitigated disaster

That's what I'm talking about!

The subprime mortgage problem will worsen over the next year and the rate of loan delinquencies could rise further, an influential fund manager specializing in mortgage backed securities said on Wednesday.

Jeffrey Gundlach, chief investment officer at the Trust Company of the West (TCW) who oversees about $60 billion in assets, also said the worsening subprime woes would slow the economy down and lead to a cut in interest rates.

"The subprime area is a total unmitigaged disaster and it's going to get worse," Gundlach told Morningstar's annual investment conference in Chicago.

Gundlach, picked by research firm Morningstar as the best fixed income manager for 2006, said delinquencies in loans made to risky borrowers could rise as housing prices in the United States are declining, supply is growing and credit to subprime borrowers has been tightened, making refinancing difficult.

The Bush Legacy in quotations

1. "Mission accomplished."

2. "Heckuva job, Brownie."

3. "I'll see you at the bill signing."

End-zone taunting

Testy, testy

Lindsey Graham is getting snippy over the amnesty bill.

"Welcome Back You Suck!" she proclaims on her web site.

Uh-oh. Now she's getting horny:

I was wrong

not to short way more Countrywide. I hope you shorted far more than I did.


Bill Gross: Varones was right!

Bill Gross, of 4.5%-interest-rates-forever fame, suddenly sees reason for panic:
Escalating delinquencies of course ultimately lead to escalating defaults. Currently 7% of subprime loans are in default. The percentage will grow and grow like a weed in your backyard tomato patch. Now I, the curmudgeon of credit, am as sure of this as I am that the sun will set in the west. The uncertain part is by how much. But look at it this way: using the current default rate of 7% (3-4% total losses), the holders of some BBB investment grade subprime-based CDOs will lose all of their moolah because of the significant leverage. No need to worry about fictitious 100 cents on the dollar marks here. One hundred percent of nothing equals nothing. If subprime total losses hit 10% then even some single-A tranches face the grim reaper. AAA’s? Folks the point is that there are hundreds of billions of dollars of this toxic waste and whether or not they’re in CDOs or Bear Stearns hedge funds matters only to the extent of the timing of the unwind. To death and taxes you can add this to your list of inevitabilities: the subprime crisis is not an isolated event and it won’t be contained by a few days of headlines in The New York Times. And it will not remain confined to a neat little Petri dish in some mad financial derivative scientist’s laboratory. Ultimately through capital market arbitrage it will affect risk spreads in markets completely divorced from U.S. housing. What has the Brazilian Real to do with U.S. subprimes? Nothing except many of the same bets are held in hedge funds that by prudence or necessity will reduce their risk budgets to stay afloat. And the U.S. economy? Of course it will be affected. Consumption will be reduced to say nothing of new home construction over the next 12-18 months. After all, attractive subprime pricing has been key to the housing market’s success in recent years. Now that has disappeared. Importantly, as well, and this point is neglected by most pundits, the willingness to extend credit in other areas – high yield, bank loans, and even certain segments of the AAA asset-backed commercial paper market should feel the cooling Arctic winds of a liquidity constriction.

Welcome, Bill. Nice to see you've come around.

Viva le Freud

Bush concedes: it's amnesty.

Of course, even when Bush is accidentally telling the truth, he's lying. This bill gives instant amnesty to illegals without making them pay the $5,000. In the final bill, the $5,000 may buy a Z-visa or a path to citizenship, but make no mistake: 12 to 20 million illegals will get instant amnesty, and don't expect to see 12 to 20 million $5,000 cashier's checks.

Do they actually think we are stupid enough to believe they will start enforcing immigration laws against the vast majority of illegal aliens who can't come up with $5,000?

Freedom wins a small victory

The amnesty bill is obviously the the important political issue of the day/week/month, but let's not forget the other issue that John McCain is obscenely wrong about: freedom of speech.

Supreme Court to McCain: You can't ban the First Amendment.

No, the ruling wasn't as sweeping or as unanimous as common sense would dictate, but with the abomination that Congress has become, we need to celebrate small victories.

Gay Pride Day in SF

The Dykes on Bikes lead it off.

Tolerance is a family value.

Golden shower. Get it?

Gavin Newsom porked his best friend's wife. How is that gay?

Even cable cars feel gay now and then.

Sorry, I'm looking for the finance department.

Out 4 Immigration. Apparently no position on the Bush/McCain amnesty which would legalize millions of criminals already here, but do nothing to help law-abiding citizens bring their loved ones, gay or straight, to America. Back of the line for those playing by the rules.

Ratdogs beware

Hungry hawks are on the prowl at the Varones estate.

Surprise: put-option ARM borrowers are not as stupid as lenders

A new study from Experian finds what we told you months ago: that borrowers with no money down facing rising rates and sinking property values will not pay their mortgages.

Well, duh. You've got no skin in the game. You're paying $1500/month as a teaser rate on a home you "bought" for $500,000. A year or two later, the rate resets so that your payments are $2200. Meanwhile, the property market is sinking and you'd have trouble selling for $450,000. The obvious thing to do is stop paying the mortgage and let the bank take the house. You've lived in a nice house for cheap rent for a year or two. You can keep living there for free for a few more months as they go through the foreclosure process. That's a better choice than continuing to pay and having negative equity of at least $50,000 and increasingly difficult monthly payments. And you had a free option to get rich if the bubble continued. That's why we call them put-option ARMs. You just exercised your put.

HT: Countrywide Foreclosures.

Bank of America analyst: welcome to Mortgage Hell

A Bank of America analyst says this is just the tip of the iceberg, and Countrywide is the Titanic:

“The demise of two Bear Stearns managed leveraged mortgage funds could be the tipping point of a broader fallout from subprime mortgage credit deterioration,” wrote Bank of America analysts led by Robert Lacoursiere in New York.

Countrywide Financial Corp. and IndyMac Bancorp Inc., two of the largest U.S. mortgage lenders, may suffer more than other finance companies because they hold mortgages themselves as well as selling them on to investors, the analysts wrote. They may not have set aside enough money to cover losses, said Bank of America, which has a “sell” recommendation on both lenders.

Meanwhile, out here in the West, a small mortgage speculation firm goes busto and lays off 100 people.

Viva Las Vegas

Off to Vegas for a couple days to spectate the World Series of Poker and play a little bit.


The CFC short is working out. I actually doubled down a few days ago above 38, and closed the extra position this morning at 37. I'm still riding the original short as the market freaks out over the Bear Stearns asset-backed hedge fund collapse.

Bear Stearns did a pretty stupid thing, going out and buying bad mortgages from bad lenders and then using lots of debt to leverage it up. The outcome was obviously foreseeable. The question is how badly the blowup will affect the broader asset-backed market and how many other funds will have to dramatically restate the value of their assets. Asset-backeds can be thinly traded and hard to price, so many funds may be pricing their holdings too optimistically.

Say they're pricing an asset-backed at 70, but they have a cash crunch and need to sell. The best bid they can get is 65. No big deal, right? A 7% drop in value. Ah, but here's where leverage comes in. These dumbasses have leveraged up their portfolio 10-1 or 20-1. A 7% drop in asset value means a 70% or 140% drop in the fund. Game over! Thanks for playing!

Grateful Bush/Kennedy amnesty recipients

Hey, nice to not control the borders and not enforce immigration law on those already here.


Free movie

Michael Moore says he doesn't care if people rip off his new movie.

Someone did. Watch it here before the lawyers get involved.

HT: Ace.

Awesome Sopranos analysis

A persuasive argument that Tony got whacked.

I am now sufficiently persuaded that Tony did indeed get whacked, as opposed to the alternative, that the viewer is whacked before finding out what happens. Either way, it's a great ending.

How dare they!

Trent Lott doesn't like it when the American people question their Senate overlords:

No, Senator, the problem we have to deal with is arrogant Washington insiders forcing amnesty down our throats to give cheap labor to their big-business donors.

You can tell Trent Lott what you think here.


See? Your day's not so bad after all.

Bitter condo buyers

Yes, you're sick and mean to laugh at this video: $300,000 condo buyers upset about the builder dumping excess inventory for $145,000.
"You've got to be kidding me, dude. That's not fair! $145,000! Unbelievable. We paid $300,000."

"They promised us that they were not going to go below the market value."

I've got news for you, honey. They kept their promise. $145,000 is the market value.

Bear Stearns to hedge fund investors: Ha Ha!

Bear Stearns raised money from investors to leverage up and invest in subprime loans. Brilliant! Now with the fund down 23% (and getting worse), Bear won't let investors cash out. Worse, Bear won't answer their questions:

Investors in a 10-month-old Bear Stearns hedge fund are learning the hard way the danger of investing in risky bonds with borrowed money. The investment firm's High-Grade Structured Credit Strategies Enhanced Leverage Fund, as of Apr. 30, was down a whopping 23% for the year.

The situation is so bleak that Bear Stearns' asset management group is suspending redemptions at the onetime $642 million fund—meaning investors have no choice but to sit on their losses. And that's got some hopping mad.

"At the end of the day, I'd like someone to be honest with me about what's going on," says one investor in the hedge fund, which bet heavily on bonds backed by subprime mortgages, or home loans to consumers with shaky credit histories. An investor in Europe, who didn't want to be identified, says he's been trying to get his money out of the hedge fund since February.

He's particularly incensed that on a June 8 conference call the fund's managers set up to discuss performance, Bear Stearns officials refused to field investors' questions. "They specifically said they weren't taking any questions," says the investor. "They didn't want to say anything."

Let this be a lesson to them. Investors in hedge funds are, by and large, idiots. Most hedge funds chase returns by using way too much leverage buying risky assets. Worse, the thousands of hedge funds out there pursue a lot of the same strategies. When a trade goes the wrong way with tons of leverage and many funds leaning the same way, it can be a bloodbath as everybody runs for the exits.

Sopranos finale

It was a perfect ending, despite what idiots like Nikki Finke say.

The final scene will go down as one of the classic scenes in television history.

Housing bubble: the video

Watch this before the censors at YouTube pull it.

HT: HousingDoom.


I was interested by the previews for Knocked Up. Zeke confirms my suspicions: it's awesome.

Another one I'll recommend based on previews only: Mr. Brooks.

Subprime analysis

This, by UBS analyst Tom Zimmerman, is the best I've seen -- and contains plenty of gloom and doom for housing. Read the whole thing.

Farewell, Tony Soprano

Peggy Noonan is as eloquent paying tribute to the Sopranos as she is explaining why Bush sucks.

I will miss the Sopranos. And cancel HBO when it's over.

Interest rates and the housing market

If you're not a daily follower of the financial markets, you might have missed the big move in the bond market yesterday. What's it mean if you're not a bondholder? Answer: housing doom.

The higher yields on Treasury bonds will mean higher mortage rates. This will be devastating to anyone with ARM resets coming up. And it also means higher rates, and lower affordability, for new buyers. The traditional 30-year fixed is moving to 6.5% - 7%. That means hundreds of dollars more each month in interest for a typical home.

If you're selling a house, cut the price now to move it. If you're buying, wait six months or a year for prices to reflect the new rate environment.

How the McCain-Kennedy-Bush amnesty debacle fell apart

Thank goodness it's apparently dead. Though it reserves the right to raise its ugly head again like Jason Voorhees.

How it happened, from Right Wing News.

Smacked in the face by reality

Bill Gross, Mr. Ultralow-Inflation-and-4.5%-Interest-Rates-Forever, is changing his tune:

Over the next three to five years, our secular outlook suggests that global inflation, and certainly U.S. inflation, will accelerate mildly for a number of reasons. We also suggest that global growth continues rather strongly at a 4% to 5% pace, which is typical of what we’re experiencing now.

That combination, I suppose, is not necessarily bond-friendly, especially in light of some of the changes that may take place in terms of financial flows—the recirculation of reserves from foreign central banks, et cetera. As a result, we’ve raised our forecast range for global interest rates, moving the range for 10-year U.S. Treasuries to 4.0-6.5% versus last year’s forecast range of 4.0-5.5%, for instance, which is sort of indicative of how we see the bond markets in general.
To which I say, it's about time. I guess rates rocketing past 5% like Rosie O'Donnell chasing a lard-covered lesbian was enough to make the esteemed Gross ponder his assumptions. For a hysterically bearish (but possibly correct) view of this development, please see Karl Denninger.

Stupid lender tricks




Thanks to Old Zeke for sending me this.

The greater fool

Are you a teacher or other public employee?

Look what your masters are doing with your pension money. They lost a bunch of it buying tech stocks in the tech bubble, so now they're trying to make up for it by buying the worst mortgage securities:

By David Evans




"I have trouble understanding public pension funds' delving into equity tranches, unless they know something the market doesn't know," says Edward Altman, director of the Fixed Income and Credit Markets program at New York University's Salomon Center for the Study of Financial Institutions.

"That's obviously a very risky play," he says. "If there's a meltdown, which I expect, it will hit those tranches first."

Calpers spokesman Clark McKinley declined to comment.

Countrywide is still pimpin' and the orange midget is still dumpin'

Months after the financial media exposed the idiocy of pay-option ARMs, and even after Countrywide started experiencing shockingly high early delinquencies on them, Countrywide is still pimping the pay-option ARMs:

San Francisco Civic Center Countrywide office, May 31, 2007

... and the orange midget, Angelo Mozilo, is still dumping.
The chairman and chief executive of Countrywide Financial Corp. exercised options for and then sold 46,000 shares of common stock, under a prearranged trading plan, according to a Securities and Exchange Commission filing Thursday.

Peggy Noonan: Bush sucks!

Of course, she didn't say it exactly like that. She said it in that trademark Noonan way, like a very disappointed mother. Like your mom's tone when she came home early and found you molesting the family dog.

Here it is.

Closing Dell short

Dell reported solid revenue and earnings. I still think all of my long term concerns about Dell are valid, but I don't like to short stocks that are beating estimates. Especially in a market that just keeps going up. I am covering my short for a small loss.
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