Back to work Monday has arrived and my normal routine is to find Bill Fleckenstein musings on the financial markets. I'm fairly sure he coined the term "housing ATM," among other gems, and he's at it again with this morning's take on the markets.
Perhaps as a sign that folks are starting to care, the shares of mortgage-insurance underwriter MGIC Investment (MTG, news, msgs) sank 5% on July 18, despite its win at "beat the number." This is a bit of the linkage I've been looking for, in terms of potential rot from the housing sector spilling into the financial sector.Large financial players have been doing a lot of hedging behind the scenes. Last week Seattle's Washington Mutual announced it sold $140 Billion worth of it's entire government and part of it's conforming loan servicing portfolio to Wells Fargo.
In other words, some folks are beginning to rethink the notion of loans against homes as impregnable assets. In my opinion, any company that has profited by aiding and abetting the housing ATM is in trouble — and at serious risk, if it has a leveraged balance sheet with its assets being loans to houses.
I make those comments based on what I can see has gone on, and I'm sure that lots of unusual business practices have gone on that we have no knowledge of. Just as we didn't find out about Enron, WorldCom, options-backdating, etc. until the tide went out, we have yet to discover what borderline, if not outright criminal, behavior occurred in the housing mania.
When the stock market begins to connect the dots and that recession looms, all hell is going to break loose. Exactly when that occurs, I do not know, but it's coming.
Remember the old saying, "watch what people do, not what they say" —about the markets. I regularly get reports from my brother who lives in Massachusetts and travels around New England regularly—said over the weekend his wife's co-worker's house has been on the market for months and now has gone into default. In his classic accent, "the maaaaket is wicked bad. No one is buying."
I get the feeling the Seattle area R.E. markets are really going to do much better than I initially expected. Will this S-Crow be eating crow or are we lagging far behind other markets around the country?