RE: [RT] Re: [TimeandCycles] The Great Bear has just begun, RealTraders Email List Archive

Again, Ben must have been referring to the 21% one payment delinquency rate. That would be about correct if the ‘official’ delinquency rate (30 day past due) is 4%.

Sales tax is certainly a key. But all revenues are important to any state. Function and revenue are not segregated. In most states property tax is the domain of local governments so the state is not directly affected by property tax problems. However, as municipalities suffer, so does the host state. You reflect on Arnie’s pulling the salary trigger as a good thing. Others take it as a sign that there are problems. There are. Nationwide state revenues down 5%. Like I said, I haven’t any other insight into California’s problems or lack of problems.

About defaults around the corner, I can’t disagree with you more. They’re on us and its only just begun. 4000 S&Ls became 250 S&Ls in about 6 years in the ‘80s. The ‘80s were child’s play compared to what we will see. The largest bank in the US would already have been under had it not been for middle eastern money (Citi). The final waves of adjustable resets are only now hitting us. And the foreclosures? After a default it can take two years to get a mortgagee out of a house so it can be auctioned. The result of defaults will trickle in until they become a torrent in the next couple years. Property values will decline to at least the 2001 values and with typical reversion to mean they should dip below those levels. In Japan real property lost more than 60% of its 1980s value by the end of the ‘90s. Can happen.

Back in the day, I used to tell boards of problem S&Ls and banks with whom I was associated that foreclosures and repos were like an annuity. Run a 4% delinquency (more than 30 days) in first mortgages this month and you’re looking at a longer term loss of about double that in foreclosures. In consumer loans (auto and mobile home) run 8% delinquency and you’ll lose about 16 out of every 100 loans to repo. The gift of bad credit keeps on giving.

The funniest thing (or not so funny) about bad credit decisions is the inability of management to understand the meaning of down payment. Management and boards THINK that because a person has “good credit” any resultant loan will be a “good loan” regardless of downpayment. Absolutely wrong in two respects. First, a person without a downpayment hasn’t anything tangible to lose by allowing foreclosure/repo. Mid western repo rates in Texas for the largest mobile home company in nation in the ‘80s was MORE THAN 50% of their loan portfolio. When their equity went sour, those cowboys saddled up their horses and galloped away from those homes. Second and far more important, every extra dollar received in downpayment is one LESS dollar lost if and when foreclosure/repo occurs. Gosh, what an epiphany. And yet, I’ve seen this cycle 3 times in my lifetime. Slow motion train wreck. This time, however, the lack of inter institution liquidity occasioned by the derivative web and inter institution dependence will accelerate things as Bear Sterns can attest.

JMHO

From: realtraders@xxxxxxxxxxxxxxx [mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf Of hostmaster
Sent: Sunday, August 03, 2008 12:28 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: RE: [RT] Re: [TimeandCycles] The Great Bear has just begun

Thanks for the referral to that article. It in fact makes exactly my points.
1. Sales tax is the key element to State funding revenues, not property tax.
2. The current deficits are projected to grow and the economy to mirror the dot.com busts which hit Calif extremely hard. California also survived those without any defaults. The fact the govenor is pulling the salary trigger only helps manage the deficit, not make it worse than prior ones.

Again, as in my prior post, I do agree that California is in for hard times. My disagreement is with Ben's "facts" and his belief defaults are coming around the corner.

Boater805

At 05:16 AM 8/3/2008, you wrote:

Hard to support the proposition that “Yes Chicken Little, Revenues are up, Home prices are still above where they were 4 years ago. “ when the Gov is cutting salary. And 11 months of housing inventory. Sure housing prices are above where they were 4 years ago. But they aren’t selling. You might read the attached article on CA.

http://abcnews.go.com/Business/story?id=5473725&page=1

And 4% delinquency. When a bank has a 30 day 4% delinquency rate (actually the mortgagee is 2 months behind) in first mortgage loans, the ultimate foreclosure rate in the portfolio will be DOUBLE (closer to triple) that amount and that bank will be put on the Fed Reserve and FDIC’s watch list. It’s as predictable as the sun coming up in the morning. Two payments past due means, more often than not, the house is a) vacant or b) the mortgagee is consulting with a bankruptcy attorney. About Ben’s 21% foreclosure rate. I’d expect he’s referring to the one payment delinquency rate. If the ‘official’ delinquency rate is 4% then the one payment delinquency rate is closer to 21% than 10%.

And finally, property, sales, personal and corporate taxes generally aren’t fund or function specific, even in CA. That property taxes fund schools, hospitals, etc is meaningless….it’s all one pot of money (very little specific use restrictions that can’t be avoided with the aid of a crafty states attorney general) and if there isn’t enough, specific functions don’t get ratcheted down in an orderly fashion. They just run out of money.

I’d say CA bonds, should any muni’s fail, would be first on my list. Otherwise, I don’t have an opinion on CA finance (psst Orange County).

Hey, I really enjoy seeing the liberal west coast infection going east. Having lived in Raleigh as dozens of CA corporate campuses relocated in the ultra conservative state of NC in the 80s, I watched that conservative state descend into much the same checkmate situation. Governor Easley invoked an emergency fiscal declaration in 2003 in which the state CONFISCATED from local governments 100% of the otherwise shared sales tax (NC formerly got 2 out of 6.5% and the counties got 4.5%). He was forced to do this to pay for his multi billion dollar pre K (“save the children”) program he campaigned on AND continued use of the state helicopter to fly him to his beach house on the coast twice weekly. Ain’t socialism wonderful.

From: realtraders@xxxxxxxxxxxxxxx [ mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf Of hostmaster
Sent: Sunday, August 03, 2008 1:27 AM
To: realtraders@xxxxxxxxxxxxxxx
Subject: Re: [RT] Re: [TimeandCycles] The Great Bear has just begun

Really now Ben, I hope the technical trading analysis you post is more accurate and better researched then this nonsense you are tossing about regarding the State of California's liquidity. Its really sad to see such plain wrong info being bantered about and even when called on it instead of research and information the fall back is wild guessing.

1. California property tax revenues primarily fund county and city programs .. largest going to schools, county hospital system, jail system and local law enforcement along with misc other. Most Statewide programs and State employees are funded by sales tax and fees.

2. The # of mortgages in california that are more than 30 days behind in payments is 4%. Not the 21% you seem to have made up out of thin air (just what source do you claim to cite for that anyway?). That 4% is about 4 times "normal" but even that is more than the number in actual foreclosure.

3. Even property tax issues are somewhat abated since California under propostion 13 has been unable to raise property taxes except upon sale to new owners for decades. In fact, property tax revenues to the state of california have continued to INCREASE right up thru last week (and still continue to do so since foreclosures get re-assessed also with the bank being the new owner and its still a move up in valuation for any property that has not turned in the past 4 years or more on average). Yes Chicken Little, Revenues are up, Home prices are still above where they were 4 years ago. Payroll is way way down due to the cuts via layoffs and minimum wage conversion.

The bottom line, if anyone is planning going short on Calif State Bonds due to the current mortgage issues and economic outlook you will get severly burned. Have at it.

For the rest of you who are more rooted to reality, remember that prejudice is a great time saver as Ben has now illustrated. It allows one to form an opinion without taking the time to gather the facts. It is not a good investment tool however.

Boater805
At 06:28 PM 8/2/2008, you wrote:

with 21% of homes in foreclousure in state of california

and banks like countrywide who do not hold escrow for local tax

how would state get revenues to pay their employees?

Ben

----- Original Message -----

From: hostmaster

To: realtraders@xxxxxxxxxxxxxxx

Sent: Saturday, August 02, 2008 7:54 PM

Subject: Re: [RT] Re: [TimeandCycles] The Great Bear has just begun

I wish we could credit it to the govenor but it is the operation of law. Our govenator continues to be a disappointment.

As to Ben's forecast of possible public debt default, the State Controller says that is not going to happen if a budget is passed in the next several months. Large as the State of California debt service is, the payroll load is far far far larger and those savings insure adequate liquidity to continue making debt payments.

Boater8095

At 02:12 PM 8/2/2008, you wrote:

I take it as good news that California is showing a little fiscal responsibility and tring to cut expenses as they face lower tax revenues. Had they done nothing and begun to face defaults then *that* would be *bad* news indeed.

Bob

On 8/2/08, Ben <profitok@xxxxxxxxxxxxx > wrote:

everything is REALLY bad

all employees of california state recieved a letter telling them not to come to work monday

and, if they do

they only get min wage!!!

mkt should come hard down with this news

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