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TFJ: The Mortgage Market is Still Heading Into the Woods
- 1. WEEK ENDED MAY11 2012 Thoughts from Joe Steppin’ Out The Mortgage Market is Still Heading Into the Woods Allow me to tell this story in numbers, thanks to a conference seminar I attended this week: Total mortgages = $10.3 trillion Government mortgages = 50% of total, but 90+% of new mortgages So far in the cycle, we have liquidated 4.2 million mortgages If you assume: • 80-90% of nonperforming loans default • 40 -55% of re-performing loans default (those that went 90-days past due and then became current) • 20 -35% of performing loans with LTV > 120% default • 10 – 15% of performing loans with LTV between 100 – 120% default • 4 – 5% of performing loans with LTV below 100% default Then you would expect 7 – 9 million more defaults in this cycle. This means we are only about 25% through the mortgage crisis – and still steadily heading into the woods. Top Eight 1. Greece wants to end austerity – But who will pay? At least seven political parties will have members in parliament including a neo-Nazi group which gained seats for the first time. Tsipras enjoyed his day in the sun calling for an investigation of the legality of Greek debt. Who let this clown school of a leadership into the EU in the first place? 2. The European Financial Stability Facility (EFSF) approved the release of €5.2 billion to Greece. Some European member states did not wish the payments to go through after the success of the hard left in last weekend’s elections. This is an all or none game. Either Germany decides to write checks for the foreseeable future, or they don’t and the eurozone breaks up. I’m betting it breaks up. 3. Fannie Mae posts biggest profit since 2007. The government mortgage insurer said for the first time since 2008 that it won’t need a quarterly cash infusion. Regardless of the linked article, don’t expect this to last. See feature article above.
- 2. 4. Like hellit’s a bubble! I don’t typically like to share slide decks, but if you have any thought we are in a bubble, this one is worth a look. 5. Consumer borrowings rise more than any time in the last ten years. Non-revolving credit accounted for nearly all of the $21.4 billion increase in loans outstanding for the month of March. Student loans increased a whopping $6.9 billion during the period and have accounted for more than 100 percent of the growth in non-revolving credit since 2010. 6. New Enterprise Associates closes $2.5 billion venture fund, its largest in six years. The consolidation trend is alive in venture as this fund alone should account for more than 10 percent of venture money raised this year. 7. JP Morgan losses will support arguments in favor of the Volcker rule. The $2 billion loss, taken in the context of a $300 billion portfolio and well north of $100 billion in capital, will not create any real problems for the bank except additional headache over proprietary trading. I believe Jamie Dimon is a fantastic bank manager, but I don’t think calling it “stupid” will dull any criticism of the prop desk’s loss. And another thing, “chief investment officers” should not be trading proprietary funds – they should be looking out for clients. 8. Facebook is “Muppet Bait” – another Henry Blodget post. Referring to a line from the Goldman partner who recently publicly resigned. Blodget attacks the Facebook IPO based on hype, lack of growth, and even argues they are behind the times in mobile. Whatever the case, you have to respect someone who can make $20+ billion wearing a hoodie. Key Indices Return 5/11/2012 1 week YTD Treasury 5/11/2012 5/4/2012 Change Dow 12,821 -1.7% 4.9% 30yr 3.01% 3.07% -0.06% S&P 500 1,353 -1.2% 7.6% 10yr 1.84% 1.88% -0.04% Nasdaq 2,934 -0.8% 12.6% 5yr 0.75% 0.78% -0.03% Euro Stoxx 2,255 0.3% -3.0% 2yr 0.26% 0.25% 0.01% Nikkei 8,953 -4.6% 5.9% 1yr 0.17% 0.17% 0.00% Hang Seng 19,965 -5.3% 8.3% 3mo 0.09% 0.07% 0.02% Source: Bloomberg Looking Ahead • Tuesday brings the bulk of economic data next week, including retail spending and consumer prices. • The Facebook IPO is slated for Thursday. • Earnings reports of interest include:
- 3. o Monday: Agilent Technologies o Thursday: Salesforce.com JOE MORGAN, CFA Chief Investment Officer SVB Asset Management 555 Mission St., Suite 900 San Francisco, California 94105 PHONE 415.764.3149 jmorgan@svb.com svb.com Profile Find SVB on LinkedIn, Facebook and Twitter ©2012 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SVB>, SVB>Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks. SVB Asset Management, a registered investment advis is a non-bank affiliate of Silicon Valley Bank and member of SVB advisor, bank Financial Group. Products offered by SVB Asset Management are not FDIC insured, are not deposits or other obligations of Silicon Valley Bank, and may lose value. This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable, but which have not been independently verified by u and for party us this reason we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing levant relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. The rates and yields have been obtained from sources we believe to be he reliable, but we cannot guarantee their accuracy or completeness completeness.