Mortgage Foreclosure Fraud

With an increasing number of large banking institutions freezing foreclosures because they don't have clear title to the property, Congressman Grayson points out that mortgage foreclosure fraud is running rampant and seems to be big business.  Bank of America has now announced freezes on its foreclosures adding to an ever growing list of banks now announcing foreclosure freezes.  What a mess this mortgage situation is, most banks don't even know what they own the property or if they can foreclose on it.

Updated Problem Bank List

The problem bank list grew to 877 this week with 2 removals from the list and 6 additions.  The removals were Shoreline Bank (which was on the FDIC failure list this week) and Sterling Savings Bank.  Among the additions to the problem bank list was Alaska Pacific Bank, which is the first Alaskan banking institution to make the problem bank list.  The Unofficial Problem Bank list now has assets worth $416.1 Billion compared to last weeks 872 institutions with assets of $422.4 Billion.  Assets fell due to the removal of the publicly traded bank Sterling Savings Bank.  (Summary Credit goes to CalculatedRisk).

Link to the Unofficial Problem Bank List is here.

Link to Calculated Risk Quarterly Bank Transitions Matrix is here.

Weekly Bank Failures for 2010

We lost 2 more banks this week, bringing the total losses to 129 year-to-date.  The losses came to the states of Washington and Florida.  Washington lost Shoreline Bank located in Shoreline, WA and Florida lost Wakulla Bank located in Crawfordsville, FL.  As you can see the graph Florida leads all states in the number of failed banks.

2009 had a total of 140 banks failed, we are now 11 banks away from reaching 2009's number.  To get an idea of the number we lose week over week, the following graph shows failures per week and a 4 week Moving Average (MA) for trending reference.

Monthly Personal Spending and Income

The Personal Spending and Income numbers were released yesterday showing an increase in income and disposable income, but spending remains flat MoM (Month-over-Month).  I am moving to this new graph (Figure 1) to keep up with revisions and to show possible reductions in disposable income as tax increases come into play in 2011.

Figure 1

Figures 2 and 3 will continue to reflect headline numbers (forecast & actual) to show wins or losses in actual vs. forecast numbers, but will not reflect revisions.  Generally speaking when actual beats forecasts the market rallies (as long as no other negative news is released) and vise-versa for when actual fails to beat forecasts.

Figure 2

Figure 3

Figure 4 shows Personal Savings which increased slightly from the prior month, but lower than Junes high for the 2010.

Figure 4

Personal savings is the hardest to track as revisions seem to be never ending.  Figure 5 shows the revisions that have taken place in the BEA (Bureau of Economic Analysis).  The columns reflect the date the report was derived from (i.e. Augusts data in the August10 column,  was derived from the August report reflecting on the entire years data revised).   As you can see as we progress month to month (rows) revisions are constantly performed until you get to the green highlighted area where it stabilized months later.  This seems like a lot of revisions.

Figure 5

Monthly ISM Report

The monthly ISM report came out this morning.  The ISM PMI Index is a level of diffusion index based on surveyed purchasing managers in the manufacturing industry.  The forecasted ISM number called for 54.6, but the actual headline number was 54.4, which was lower than the prior months 56.3.

Figure 1

The ISM PMI index is composed of the following subcategories; New Orders, Production, Employment, Inventories, Prices, Backlog Orders, Exports and Imports.  Some of the indicators need to be rising and some should be decreasing to be healthy.  The subindexes that should be rising month to month are; New orders, Production, Supplier Deliveries, Employment, Backlog Orders and Exports.  Figure 2 shows those subcategories and are all pointing down showing slowing growth.

Figure 2

What are Supplier Deliveries and why are they important?  Supplier Deliveries tracks the change in delivery times from suppliers.  If the value is increasing (above 50), then Purchasing Agents are waiting longer to get material they ordered due to high demand for that material.  Overall the higher demand shows that other areas of the economy are healthy as well.  We see in Figure 2 that Supplier Deliveries are actually slowing, which is another clue that the economy is slowing and is not healthy.  Figure 3 shows the subindexes that should be decreasing; Inventories, Prices and Imports.  Figure 3 shows inventories and prices rising and imports stagnant.  This is also a sign of slow growth.

Figure 3

The general trend in figure 3, since may is trending down showing a slowing since May10.  Figure 1 shows the trend on the 4 week moving average also pointing down.  We will have to continue to monitor these trends over the next few months.

Fed Funds Rate Decreases

The Fed Funds Rate reduced from .18% to .15%. Gold moved up approximately at the same time frame.

Currency Crisis and the World Economy

Pomo Purchase

The Fed initiated another POMO (Permanent Open Market Operation) purchase.  This where the Fed purchases treasuries from its primary dealers infusing them with cash.  Today, the Fed purchased $2.2 Billion.

Operation 1 - RESULTS

Operation Date:   09/30/2010
Operation Type:   Outright Coupon Purchase
Release Time:   10:15 AM
Close Time:   11:00 AM
Settlement Date:   10/01/2010
Maturity/Call Date Range:   02/15/2021 - 08/15/2040

Total Par Amt Accepted (mlns) :	$2,200
Total Par Amt Submitted (mlns) :	$11,499

This brings the total POMO purchase for the month of Sep10 to $27.527 Billion dollars and Aug10 to $8.925 Billion for a grand total in 2 months of this year (as they started POMO back up in Aug10) to $36.452 Billion.

Quarterly GDP Final

The final GDP Q/Q numbers were out today with a headline number of 1.7% beating forecasts of 1.6% and the prior months number of 1.6%.  This also beat Augusts preliminary numbers of 1.6%.  As I dive deeper into the GDP report, I will publish where the improvements came from, as we need to peel back the numbers and see where the growth came from.

Weekly Initial Unemployment Claims

The weekly Initial Unemployment Claims came out today.  Initial Claims is the number of people that filed for unemployment benefits for the first time in the prior week.  The forecast was for 458K and the actual headline number of 453k.  The prior weeks number of 465k was revised to 469k (a 4k increase over the headline number), making this weeks number a 16k improvement (but we'll know for sure once this weeks revisions are in).  With more layoffs in the financial industry ahead, it should be interesting what happens over the next few months with initial claims.

The delta between actual and revised continues to be wide, a phenomena that seems to be specific to 2009 and 2010 (prior years delta was less and numbers more accurate, go figure).  

Is This the Start of a Trade War with China?

Our friends at ZeroHedge posted that the House passed legislation to somehow revalue the Chinese Yuan. It allows the commerce department to impose duties on imports from countries with undervalued currencies.  This passed the House by a vote of 348 to 70.  I agree that the currency manipulation has to stop and we need to level the playing field so the US can become a bigger player, but honestly is this the right time to start this?  We have a consumer that is about to get hit with higher taxes and fees in 2011 (cause they most likely aren't extending those cuts, if they do it won't be long and fees will most likely take their place in the interim), so now we are going to strap the US consumer with higher food prices because it is mostly imported from countries that manipulate currency.  These days that is everybody.  Ouch, maybe we should have created a better plan of re-invigorating food production and manufacturing for US consumer staples in our country (you know Agriculture and production) before we floated this beauty.  Another thing, who is going to fund QE?  As it was pointed out China may deem QE as currency manipulation and decide not to fund us.

I think something needed to be done, but maybe our timing was slightly off (by a long shot).  Lets become producers again (you know create jobs in our country and become self sustainable) and then take more strategic action.  [ Read more ... ]

Monthly ETF Money Flows

Augusts ETF money flows report was out which showed money leaving the ETF market as a whole.  This is consistent with what is occurring in the mutual fund market, but the Mutual Fund market getting hit with outflows in the billions month over month (refer to Weekly Fund Flows Update), which adds to the story that the main thing feeding this monster seems to be the FED and its Primary Dealers (also referred to as the Plunge Protection Team).

A breakdown of what type of ETF is experiencing the largest outflow reveals large cap stocks are seeing the largest exodus.  Overall Large Cap, Mid Cap and Small Cap ETFs are experiencing negative money flows (i.e. money is being taken out).  Other ETF types experiencing negative flows were; Consumer, financial, health, Natural Resources and technology.  The big winner seemed to be Emerging Markets and corporate Bonds (no surprise there), with bonds experiencing a positive flow of money across the board.

This seems very concerning for the markets and we will have to continue to monitor the trend in ETF money flows.

Doug Kass on the Markets

Doug Kass discusses the technicals and fundamentals of the market, as well as QE2.  Doug notices that volume in the market is very low while stocks rise.  Also, discusses the amount of money coming out of the mutual funds (refer to Money Flows).   Doug points out that short term a devaluated currency will help exporters, but long term is going to bite us.

JPMorgan Foreclosure Problems

Now JPMorgan is having to stop/slow down foreclosures due to not properly reviewing foreclosure documents ensuring it went through the proper channels and that they had clear title to actually foreclose.  This even occurred last week with GMAC Mortgage as well, in which they halted foreclosures to review their foreclosure documents ensuring they have clear title.  Diana Olick points out that this is only adding more pain to an already ailing mortgage market.

Weekly Fund Flows Update

The weekly fund flows report was out this week showing continuing outflows out of Domestic Mutual funds and small/medium flows into foreign stocks.  $1.907 Billion dollars came out of Domestic Mutual funds and $616 Million into Foreign Mutual Funds (shown in Figure 1 below).

Figure 1

Bonds saw large inflows again this week.  A total of $6.913 Billion poured into Bond funds with $6.295 Billion of that number going into taxable bonds and $619 Million flowing into Municipal funds (shown in Figure 2 below).

Figure 2

Figure 3 shows the total Mutual fund flows (Domestic + Foreign) vs. Total Bond flows (Taxable + Municipal).   Again we see a flight from the stock market and into the bond market.

Figure 3

Between the constant flows out of Domestic Funds and POMO actions, you can see how the stock market is being supported by government funds.  How long can this continue?  This is not a healthy trend and is increasing the bill that Americans are going to have to pay later.