Barbarians At The Well

Due to circumstances beyond my control I had to take a few days off from RP. I am back now with an interesting article from the WSJ about KKR investing $400 million in a Texas Shale resource play. According to the Journal, this is not the infamous buyout firm’s first foray into unconventional gas sources with a $325 million stake in East Resources paying off handsomely after Shell paid $4.7 billion for the Pennsylvania based driller.

Morning Bell – 06.15.10

Good Morning. The markets are opening up following yesterday’s late selloff. The Euro is back above $1.22. Its also worth noting that Greece CDS spreads widened 5.75% to 779 bps on news of its downgrade to “junk” status yesterday by Moody’s.

Today’s Numbers:

1000 – NAHB Housing Market Index

Time to Buy in Miami?

Recently, this press release regarding ongoing negotiations between The Realtor Association of Miami-Dade and 5 of the largest regional lenders in South Florida over a new Short Sale program was brought to my attention. The aim of the new program is to expedite the short sales process and clear some of the backlog of distressed properties in South Florida. While it appears to be a win-win for all parties involved on the surface I remain somewhat skeptical about the prospect of foreign buyers re-entering the Miami real estate market.

First of all, its worth considering the reason banks would be eager to expand their short sale programs. Large lenders such as Bank of America are aggressively moving forward with their short sale programs because of government incentives. I think this is a step in the right direction in stabilizing both the housing market and bank balance sheets.

Consider for example, a home loan currently on the books for $300,000. The bank is required to begin a foreclosure process which costs about $78,000 on average according to the Congressional Joint Economic Committee.  Broken down, assuming that the house has fallen in value by a third. The bank is expected to loose an additional 26% of the pre-foreclosure value in costs alone. That leaves the bank with around $148,000 net and a loss of 51% on the loan. Of course this is just an estimation, but it is easy to understand why a short sale process is favored. It doesn’t cause repercussions as severe as foreclosure for a borrower and the lender can recover a higher percentage of the original value of the loan.

Market Recap – 06.14.10

Maybe it was because of the ongoing World Cup but trading was slow today. Volume in the SPDR’s was about 28% below the 3 month average as the markets reacted to the junking of Greece by Moody’s.

Stocks

DJIA 10,190.89, -20.18

SP500 1089.63, -1.97

COMPX 2,243.96, +.36

Rates

TED 48.33, +1.521

3-mo. 05, -.015

10-yr. 3.26, +.029

30-yr. 4.19, +.039

Greece Downgraded

I can’t imagine this coming as a surprise to anyone, but the inevitable has happened yet again as Moody’s cut Greece’s Sovereign Rating to Junk status. S&P had already lowered its Greece rating on Apr. 27th.

Via WSJ:

“Moody’s Investors Service on Monday slashed Greece’s government-bond ratings by four notches to “junk” territory, saying there was “considerable” uncertainty surrounding the timing and impact of support measures on the country’s economic growth.

The ratings agency cut the rating to Ba1, which is the highest junk-level rating, a level that reflects Moody’s analysis of the balance of strengths and risks associated with a joint support package from the European Union and International Monetary Fund.

There was scant initial market reaction to the downgrade, with the euro holding onto most of the day’s gains, sparked by strong euro-zone economic data. Stocks in the U.S. also held their advance.”

As of 1400 EST the major indexes began to approach lows and the Euro reversed below $1.22.

Risk On!

Good Morning.

Pre-market we see continued upside movement following Friday’s close. The S&P500 is through the highs and is approaching breakout levels. The Euro is continuing to hold above $1.20, now back over $1.22 and it appears to continue to the correlation-chase de jour. Also note the weakness in gold and strength in other commodities.

Redundant Pathways

Redundant Pathways? Is this blog already redundant before I’ve even written a single post?

Of course it isn’t. In fact the name of this blog was inspired by a great interview from the New Yorker featuring Nassim Taleb.

In addition to being the best selling author of The Black Swan, Dr. Taleb is a Professor of Risk Engineering, an epistemologist and a prolific tweeter.

Most of you don’t have 20 minutes to listen to Taleb wax philosophic (he is an acquired taste) about Risk and Robustness so I have taken some of the finer points and interesting sayings and distilled them into neat soundbites (just what our society needs) with some of my commentary. Enjoy.

Hello world!

Welcome to my new blog Redundant Pathways!

I hope you will find the time to read some of the economic analysis and commentary that I will be creating here for you.

That being said, I am a first time blogger without formal training in writing or journalism, and I am using this space to grow intellectually so bear with me as I learn the ropes.

As an upfront disclaimer I am not providing any investment advice, I am not an employee of a broker-dealer or any investment management firm nor do I own individual positions in any securities or businesses.

Thank you for stopping by. I hope as time goes on both you and I can gain insight that will help make better and more informed investment decisions.

-R.P.