Goodbye David Lereah

It truly is the end of an era. The National Association of Realtors' Chief Punching Bag has finally resigned. After years of declarations that there was no Housing Bubble, the NAR's Chief "Economist", David Lereah, is moving on to greener pastures. He joining Move Inc. as Chairman and partner. Can a former NAR Chief Economist with zero credibility, actually revive a company who's stock is down 95% from its peak? Investors seem thrilled with the news as the share price dropped by over 2% today. Karma?

Economy Crawling Along

Economy Crawls, Raising Recession Fears

ASHINGTON (AP) -- The worst economic growth in four years is raising concern that troubles in the U.S. housing market will spread and throw the country into a recession before the year is out.

The economy practically crawled at a 1.3 percent pace in the opening quarter of 2007, the Commerce Department reported Friday. That was even weaker than the sluggish 2.5 percent rate in the closing quarter of last year.

The main culprit in the slowdown: the housing slump, which made some businesses act cautiously. The bloated trade deficit also played a role.

Consumers largely carried the economy in the first quarter. But will they stay resilient in light of the troubled housing market, fallout from risky mortgages and rising energy prices?

"The No. 1 question is can the consumer continue to play Atlas while the housing market crumbles around him?" said Richard Yamarone, economist at Argus Research. Others worry about businesses' appetite to spend and invest -- also important ingredients for a healthy economy.

Friday's report brought some of these uncertainties to the fore. For now, though, economists believe the risk of a recession is low. Former Federal Reserve Chairman Alan Greenspan has put the chance of a recession this year at one in three.

Federal Reserve Chairman Ben Bernanke, however, has said he doesn't believe the economic expansion, now in its sixth year, is in danger of fizzling out. Neither does the Bush administration.

Top Market Timers Still Bullish

Top market timers staying strong on stocks

The market-timing newsletters with the best long-term records remain as bullish today as they were following the sharp market break on Feb. 27.

he five are listed in alphabetical order, along with a brief summary of their current market timing opinions:

* Bob Brinker's Marketimer. Editor Brinker continues to be bullish on the U.S. stock market, as he has been continuously since March 2003. His most recent issue was published in early April, when the stock market had recovered some but not all of its late February/late March correction. In that issue, Brinker wrote that the "potential exists for the S&P 500 index (SPX : SPX1,494.07, -0.18, 0.0% ) to challenge its previous record high of 1527.46, which was recorded on March 24, 2000." As of Thursday night, when this column was written, the S&P 500 was 2.2% away from a new all-time high.
* Blue Chip Investor. Editor Stephen Check continues to believe the stock market is undervalued, based on his model that relates stocks' earnings yield to corporate bonds. The Hulbert Financial Digest calculates that his newsletter's model portfolio currently is 90% invested, vs. an 87% allocation at the end of February.
* The Chartist/Chartist Mutual Fund Letter. Two of the five newsletters with the best long-term market-timing records are edited by the same adviser: Dan Sullivan. He continues to advise a 100% invested position. In the issue of The Chartist published Thursday night, Sullivan writes: "Compared to the final stages of the previous bull market, which took place during the first quarter of 2000, this bull market is actually quite subdued, which is a good indication that it could stretch out for several more months despite the fact that from a time standpoint it is mature. The public has yet to embrace this bull market, and in essence, there is ample cash on the sidelines. The amount of cash from recent buyouts alone comes to a staggering $185 billion. On top of this, the recent buyout frenzy has reduced the supply of stock for sale."
* The Timer Digest. Editor Jim Schmidt bases this newsletter's market-timing model on a consensus of the newsletters he calculates to be the top market timers. His consensus of the top 10 based on performance over the past 52 weeks is bullish, with eight bulls and two bears; this represents a slight diminution in bullishness since late February, when this indicator stood at nine bulls and one bear. Schmidt's consensus of the top 10 for performance over the past two years is also bullish, with nine bulls and one bear; this represents a slight increase in bullishness since late February, when this indicator stood at eight bulls and two bears.

The bottom line: None of the top five newsletters for market timing performance over the last decade is any less bullish today than two months ago.

Legendary Investor: All the World's a Bubble

Jeremy Grantham: All the World's a Bubble

How high will the Dow go? 15,000? 20,000?

How about 36,000?

While euphoria sweeps stock markets here and worldwide, there are at least a few voices of dissent.

One, unsurprisingly, is legendary value investor Jeremy Grantham -- the man Dick Cheney, plus a lot of other rich people, trusts with his money. Grantham, chairman of Boston firm Grantham Mayo Van Otterloo, has been a voice of caution for years. But he has upped his concerns in his latest letter to shareholders. Grantham says we are now seeing the first worldwide bubble in history covering all asset classes.

Everything is in bubble territory, he says.

Everything.

'The bursting of this bubble will be across all countries and all assets.' -- Jeremy Grantham

"From Indian antiquities to modern Chinese art," he wrote in a letter to clients this week following a six-week world tour, "from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it's bubble time!"

"Everyone, everywhere is reinforcing one another," he wrote. "Wherever you travel you will hear it confirmed that 'they don't make any more land,' and that 'with these growth rates and low interest rates, equity markets must keep rising,' and 'private equity will continue to drive the markets.' "

As Grantham points out, a bubble needs two things: excellent fundamentals and easy money.

And it becomes self-sustaining. "The more leverage you take, the better you do; the better you do, the more leverage you take. A critical part of a bubble is the reinforcement you get for your very optimistic view from those around you."

It's something to think about the next time you hear someone tell you that the stock market will keep rising simply because the world economy is doing so well. That would make sense only if we were paying a constant price for each unit of world GDP, instead of higher and higher prices for one slice of that GDP -- equity.

Grantham concludes that every asset class is expensive today compared with historic averages and compared with the cost of replacing it. By his calculations, the only assets likely to beat inflation by any significant margin if you hold them for the next seven years are managed timber, "high-quality" U.S. stocks, and bonds.

Spring Broke!

Yes, the U.S. Housing Market hangover will be a doozy!

It's Time For the Liar's to "Pay the Piper"

If you thought that the subprime loan meltdown was bad, wait for the Liar Loan fallout. These "stated income" loans may end up causing a lot of damage to the overall economy. $400 billion worth of these mortgages are starting to show signs of stress as there were some companies with major exposure to these "Alt-a"(Liar loan) mortgages. Gee, I wonder why the CEO of Countrywide Financial (Angelo Mozillo) was dumping millions of dollars worth of his shares while pumping the stock a few months ago. I smell more investigations around the corner. Enron, eat your heart out!

Alt-A mortgage lenders feeling market's pinch

"While you're starting to see some deterioration of the quality, it's not so much that investors should be dumping [mortgage-backed securities]," he said. "But nobody wants to own a security that goes down in value, whether because of public perception or the reality of the market."

Doug Duncan, chief economist for the Mortgage Bankers Association in Washington, D.C., said that Alt-A mortgages made up a small share of the U.S. market, about 6 percent of outstanding loans. Loans to prime customers, who are the most creditworthy, make up 74 percent; those to subprime borrowers are about 11 percent, and government-backed loans total about 9 percent.

Alt-A borrowers traditionally had credit scores as high as prime borrowers, but often provided less documentation of their finances; in recent years, however, some Alt-A borrowers have had credit scores closer to subprime borrowers and still weren't asked for full documentation.

Duncan said he expected to see some increase in delinquencies and defaults in the Alt-A market this year, but said the bigger problem was that investors appeared less willing to invest in these loans because of the deepening subprime problems.

Existing Home Sales Plunge in March

It's starting to feel like the 80's again with home sales plunging by the highest amount since 1989. The National Association of Realtors can't effectively spin these numbers anymore. Oh wait! How about if they blame the weather again. Can they possibly go to the well one last time?

Sales of Existing Homes Fall by Largest Amount in Nearly 2 Decades

The National Association of Realtors reported that sales of existing homes fell by 8.4 percent in March, compared to February. It was the biggest one-month decline since a 12.6 percent plunge in January 1989, another period of recession conditions in housing.

The drop left sales in March at a seasonally adjusted annual rate of 6.12 million units, the slowest pace since June 2003.

The steep sales decline was accompanied by an eighth straight fall in median home prices, the longest such period of falling prices on record. The median price fell to $217,000, a drop of 0.3 percent from the price a year ago.

The fall in sales in March was bigger than had been expected and it dashed hopes that housing was beginning to mount a recovery after last year's big slump. That slowdown occurred after five years in which sales of both existing and new homes had set records.

David Lereah, chief economist at the Realtors, attributed the big drop in part to bad weather in February, which discouraged shoppers and meant that sales that closed in March would be lower. Existing home sales are counted when the sales are closed.

It's Almost Time for Chip Diller to Appear!

Kevin Bacon's famous role as Chip Diller in National Lampoon's Animal House comes to mind as the bad news gets worse in the Housing Market. His quote "Remain Calm. All is Well" as he is trampled by a sea of humanity, is pretty much where the National Association of Realtors is at.

Home builder D.R. Horton earnings plunge 85 pct

NEW YORK (Reuters) - D.R. Horton Inc. , the largest U.S. home builder, said on Thursday quarterly earnings fell 85 percent, in part due to charges related to the lower value of land.

The U.S. housing market has been in a severe downturn for the past year, with a mounting glut of homes on the market, increasingly resistant prospective buyers and tighter lending standards. Builders have responded by slashing prices, throwing in freebies and cutting back on "spec homes" -- those built speculatively without a buyer.

"We continue to operate in a very difficult home-building environment," Horton Chief Executive Donald Tomnitz told analysts during a conference call.

"We believe that there will be continued softness in '08, and I would expect that we'll continue to adjust our inventories downward in the first two quarters of '08," Tomnitz said.

Unlike other home builders, Horton said it has no plans to weed out potential buyers who may not be able to qualify for a loan in order to bring down the cancellation rate.

"As I've said to all our salespeople, if a buyer is warm and has a pulse, we want to put them on paper," he said.

25% Increase in Price of Eggs = 0% Inflation

The always hilarious and insightful Richard Daughty, aka The Mogambu Guru, explains how the 25% increase in the price of eggs can be reduced by officially Government sanctioned Hedonic Adjustments, such that the officially reported increase is 0% (Full article):

USA Today, citing the American Farm Bureau Federation, reports, "Easter eggs will cost U.S. consumers about 25% more than last year," as "The average U.S. retail price for a dozen large eggs was $1.51 in the first quarter, 43 cents more than a year earlier."

The explanation offered for this staggering increase in the price of eggs was that "The increase stemmed mostly from higher corn and soybean prices," which are used in the production of chickens, as "ethanol demand drives up feed prices."

I sense that you are asking, "How can eggs be up by 25%, and yet the lying government, and the lying Federal Reserve, and their lying collaborators in the lying Congress, the nations' lying universities, and the lying newspapers all say that there is no inflation in prices? What am I, some kind of stupid poopie-head that is supposed to believe that silly crap?"

By way of explanation, let me first say (with all due respect) that you are a stupid, ignorant boob and you don't know squat about how to calculate inflation these days.

The answer is, obviously, that the Federal Reserve, the government and their ignorant lackeys all say that inflation in egg prices is zero (although the price of eggs is up 25%) because the hedonically-adjusted increase in price (43 cents) is not the price of the egg going up, but is the additional cost of additional benefits that you now receive! As just one example, part of the additional 43 cents is to pay for the benefit of happier chickens, thanks to free-range chickens and less crowding.

And if the chickens are happier, see, then the eggs are not affected by, for example, stress hormones, and thus they are, somehow healthier! So, the eggs are of higher quality!

So THAT'S the benefit for which you are paying more. It has NOTHING to do with the price of the basic egg, which is, when the price of these benefits is stripped out, completely unchanged in price! Thus, inflation in egg prices is proved to be, after applying officially-sanctioned hedonic adjustments, zero!

See how I am doing this? It's easy! I don't know why government wonks get paid so much to do this stuff!

Anyway, the result is that you, as the consumer, get a big benefit from knowing that chickens are happier, and you and your family are healthier from eating higher-quality eggs, for which you paid another lousy 43 cents instead of having to eat unhealthy eggs from stressed-out chickens.

Shadow Government Statistics

One of my favourite economists is John Williams and I've been tracking his website, http://www.shadowstats.com for years. He exposes the manipulations in Government reporting that tend to make all the numbers look just a little bit better. Over time, these distortions get bigger and bigger and by the time they impact the "Man on the Street", it's already too late. The "Man on the Street" doesn't live in a Government Report. He/she has to earn real money and keep up with inflated prices, despite the rosy picture that is painted by the Consumer Price Index(CPI) and Gross Domestic Product(GDP) reports.

Chris Mayer recently had the opportunity to interview John Williams and had some key insights regarding the current economic environment (Full Article).

"If you asked a bunch of people sitting at a bar what the inflation rate was, you'd get numbers closer to the truth than what the government says in its official numbers." So said economist John Williams one afternoon over meatloaf and mashed potatoes in a little restaurant within walking distance of his New Jersey home. I made the trek out here, along with my publisher and friend, Addison Wiggin.

In a nutshell, here is the story. Government officials, mere self-interested mortals like the rest of us, want to paint the best picture possible. This, they've found, tends to win them more elections.

So every administration for years and years has made little adjustments in reported figures for things such as inflation. These little adjustments, as you might imagine, always go one way. They make things look better than they otherwise might. Over time, these little adjustments start adding up. Then you get big differences between what is really happening and what the reported figures say.

Williams has gone back and reversed these adjustments. For example, take a look at the official U.S. inflation rate, popularly measured using the consumer price index (CPI). Williams, by just using the pre-Clinton era CPI, gets a number vastly different from today's official figures:



The official numbers tell us inflation is less than 3%. Yet, when calculating inflation using the same methods that were used before Clinton took office, Williams gets inflation closer to 6%!

The latter figure is nearer to the experiences of everyday people living in this country, who have to pay for groceries, gasoline, insurance, medical bills and more. This is why Williams says that the average person has a truer sense of price inflation than what the official numbers would have you believe.

Williams ticks off the data that confirm a recession in progress: much weaker than expected housing starts, retail sales and industrial production. Also, a weak manufacturing survey, sluggish annual growth in durable goods orders, rising new claims for unemployment insurance and anemic employment growth.

Williams' Shadow Government Statistics shows the economy shrinking now, whereas the official government numbers still show positive growth.



We won't get into all of the details. But what does an inflationary recession mean for investors? Think 1970s. Not disco and bell-bottoms, but rising prices for gasoline, groceries and gold. Think higher interest rates.

Fund issues dire equities warning

Don't worry folks. The bulls have assured us that the party will continue. All is well and every day is Christmas. Hold on...we've found a dissenter...

A leading UK fund manager has sold off about half the equities in the portfolios he oversees in anticipation of an imminent and severe market correction.

Ken Murray, the founder and chief executive of Blue Planet Investment Management, has revealed he has offloaded equities and cut the gearing on the firm’s portfolios to zero in the belief a US economic recession is set to wipe more than 20 per cent from the value of global stock markets.

Blue Planet, a specialist investor in the financial sector with $350m of assets under management, operated three of the four best performing financial funds in the UK last year, according to figures from Bloomberg. Its Worldwide Financials fund was the best performing investment trust in the UK and the world over the last three years. About 25 per cent of Blue Planet’s portfolios are now in cash.

Mr Murray warned the impending market correction was likely to be considerably more severe that either of the two most recent downturns that began in February just past and in April last year.

Mr Murray, who began the share sales two weeks ago after the latest downturn, said a consumer spending slowdown was already under way in the US. Combined with rising inflation and a slowdown in corporate earnings, this would drag the world’s largest economy into recession.

“People don’t want to believe bad things will happen but the market will correct very sharply,” he said.

“It is time to get out of the market and I don’t think it would be unreasonable to expect the market to fall by more than 20 per cent in a very short space of time”.

Mr Murray has built a reputation as one of the UK’s most successful investment trust managers. He has combined his role of chairman and chief executive with an active role as an asset allocator via his position of head of investments.

The Boogeyman in 1975!

With all the controversy surrounding Global Warming these days, it's hard to know what to believe. Is the earth heating up? Yes. Is it caused by man? I don't know. Is it part of a normal warming cycle? I don't know. The most honest answer in the debate is "I don't know" or "Maybe".

We don't know enough about what causes climate change or how the earth reacts to the influence of "Man" but I'm sure we'll spend billions of dollars to find out and there will be many corporations and individuals that will profit handsomely from the study.

The debate is nothing new. We've been down this road before. Here's a great article from the April 28, 1975 issue of Newsweek Magazine:

Should you Buy or Rent?

This has been a "no-brainer" throughout the Housing Bubble of the last 5 years but now that prices have moderated, people are becoming increasingly concerned about the possibility of a correction. So, should you rent or buy? It all depends on quantitative and qualitative factors but if you want to "Run the numbers", here is a useful tool from the New York Times website:

Global Stock Market Performance - 2007 1st Quarter

So far, so good. Global markets have been largely positive in the first quarter. Stay tuned...Charts via Birinyi Associates.

Are the English Losing Their Minds?

When the Housing Bubble has been blown as big as it can possibly get, how can you make it bigger? We're not talking about a minor continuation of an already "out of control" housing market. It's Government Intervention time! Hold onto your hats and get ready for the 125% mortgage. This will not end well...

Want to buy but don't have a deposit? Here comes the 125 per cent mortgage - Now you can borrow beyond your property's value

First time buyers who have no deposit are being encouraged on to the housing ladder with the help of a new mortgage that allows them to borrow more than the price of the property.

Alliance and Leicester last week became the latest lender to offer a 125 per cent mortgage.

PlusMortgage works by offering a secured loan (the mortgage part) on up to 95 per cent of the value of the property and a further unsecured loan on up to a further 30 per cent of the value.

2) Speed Viewings hit London

From the Guardian (print only): Estate agents use new high-pressure tactic as shortage of homes sparks buyer frenzy

In place of conventional estate agent guided tours of properties, agents are encouraging vendors to open their doors for just one hour and invite potential buyers to view their home en masse. Such "mass viewings" are creating an atmosphere of panic among homebuyers.

Advice for Succeeding in the Music Business!

Straight talk on the "Recording Industry" from Dick Dale. Can you feel the love?

Viva Las Vegas (Update)

Well, it looks like Vegas is rolling "snake eyes" so far in 2007. When I was in Las Vegas last July, a cab driver asked me what I thought about the housing boom in Vegas. I told him that he should probably wait to buy a house. He thanked me for the advice as he had been thinking about buying an overpriced house that he couldn't afford with an "interest only" mortgage. I suspect he is smiling today as he has the opportunity to buy a house at a huge discount from last year. Likely, the market will get much worse before levelling off. Here are the latest charts, courtesy of HousingDoom.

Canada Feb building permits plunge from record high

It might be Canada's turn for Real Estate pain. Typically, Canada lags behind the U.S. and it has been approximately 18 months since the correction began there.

OTTAWA (Reuters) - The value of Canadian building permits plunged from record highs to their lowest level in a year in February, but analysts were quick to caution against doomsday predictions of a sudden real estate collapse.

Statistics Canada reported on Wednesday a 22.4 percent tumble in permits due to a sharp decline in both residential and nonresidential permits.

The decline was more than three times the 6.5-percent drop forecast by analysts in a Reuters poll. The total value of permits was C$4.9 billion ($4.2 billion), 12 percent below the monthly average in 2006.

Demand for housing and nonresidential construction has been robust prior to February, driven largely by a booming economy in western Canada. In fact, the Bank of Canada sees rising housing prices as one of the main risks to its inflation outlook.

"It is important not to be looking at this number in isolation. Instead, previously strong numbers had set us up for this decline," said Stewart Hall, market strategist at HSBC, in a note to clients.

Analysts noted extremely cold temperatures in February, which might have impacted construction.

As usual, when economic news is bad, you can always blame the weather.

New Century collapse sends shockwaves across the biggest lenders on Wall Street

Uh-oh! I think that they call this "contagion", although many Wall Street pundits are screaming at the top of their lungs that the subprime lending problems are isolated and will not have any effect on the overall economy. Hmmmmm.

Top 15 Creditors (by Size) to New Century

1 Goldman Sachs Mortgage Company

2 Credit Suisse First Boston Mortgage Capital LLC

3 Credit-Based Asset Servicing and Securitization LLC

4 Morgan Stanley Mortgage Capital

5 DB Structured Products

6 Deutsche Bank

7 Bank of America

8 UBS Real Estate Securities

9 Lehman Brothers Bank FSB

10 Countrywide

11 Citigroup Global Markets Realty

12 Residential Funding Corporation

13 SG Mortgage Finance

14 IXIS Real Estate Capital

15 Barclays Bank

Housing Price Roller Coaster!

Speculativebubble.com posted an excellent video using Atari's Rollercoaster Tycoon program. For full satisfaction, you have to ride the rollercoaster to the "end". It's a great illustration of the Shiller Home Price index and should not be missed.

US Home prices adjusted for inflation plotted as a roller coaster:

This video can also be seen at any of these places:

http://one.revver.com/watch/223100/flv/affiliate/79294

http://www.youtube.com/watch?v=kUldGc06S3U

http://video.google.com/videoplay?docid=-2757699799528285056

http://blip.tv/file/187197/

This is the original Shiller graph:

Goldilocks vs Armageddon

Kudlow & Company featured Mike Panzner and Don Luskin as they debated the current state of the economy and the prospect of recession this year. Who sounds more credible? Decide for yourself.

Congressman Ron Paul Points the Finger at the Real Culprit of the Housing Bubble

If you don't know Ron Paul, you should try to get to know him better. I have stated many times that he is one of the most ethical, honest politicians out there (I'm not sure if that's an oxymoron). Forget about the "Straight Talk Express". John Mccain's train got derailed long ago when he realized that he had to snuggle up to the various extreme factions of the Republican party. He has lost all credibility and will ultimately lose his bid for the Presidency. Ron Paul will also lose his bid to become President but he will always maintain his dignity and morality as he tackles the real problems in the USA.

Don't Blame the Market for Housing Bubble
by Ron Paul

The U.S. housing market, long considered vulnerable by many economists, is now on the verge of suffering a serious collapse in many regions. Commodities guru and hedge fund manager Jim Rogers warns that real estate in expensive bubble areas will drop 40 or 50%. Mainstream media outlets like the New York Times are reporting breathlessly about the possibility of widespread defaults on subprime mortgages.

When the bubble finally bursts completely, millions of Americans will be looking for someone to blame. Look for Congress to hold hearings into subprime lending practices and “predatory” mortgages. We’ll hear a lot of grandstanding about how unscrupulous lenders took advantage of poor people, and how rampant speculation caused real estate markets around the country to overheat. It will be reminiscent of the Enron hearings, and the message will be explicitly or implicitly the same: free-market capitalism, left unchecked, leads to greed, fraud, and unethical if not illegal business practices.

But capitalism is not to blame for the housing bubble, the Federal Reserve is. Specifically, Fed intervention in the economy-- through the manipulation of interest rates and the creation of money-- caused the artificial boom in mortgage lending.

The Fed has roughly tripled the amount of dollars and credit in circulation just since 1990. Housing prices have risen dramatically not because of simple supply and demand, but because the Fed literally created demand by making the cost of borrowing money artificially cheap. When credit is cheap, individuals tend to borrow too much and spend recklessly.

This is not to say that all banks, lenders, and Wall Street firms are blameless. Many of them are politically connected, and benefited directly from the Fed’s easy money policies. And some lenders did make fraudulent or unethical loans. But every cent they loaned was first created by the Fed.

The actions of lenders are directly attributable to the policies of the Fed: when credit is cheap, why not loan money more recklessly to individuals who normally would not qualify? Even with higher default rates, lenders could make huge profits simply through volume. Subprime lending is a symptom of the housing bubble, not the cause of it.

Fed credit also distorts mortgage lending through Fannie Mae and Freddie Mac, two government schemes created by Congress supposedly to help poor people. Fannie and Freddie enjoy an implicit guarantee of a bailout by the federal government if their loans default, and thus are insulated from market forces. This insulation spurred investors to make funds available to Fannie and Freddie that otherwise would have been invested in other securities or more productive endeavors, thereby fueling the housing boom.

The Federal Reserve provides the mother’s milk for the booms and busts wrongly associated with a mythical “business cycle.” Imagine a Brinks truck driving down a busy street with the doors wide open, and money flying out everywhere, and you’ll have a pretty good analogy for Fed policies over the last two decades. Unless and until we get the Federal Reserve out of the business of creating money at will and setting interest rates, we will remain vulnerable to market bubbles and painful corrections. If housing prices plummet and millions of Americans find themselves owing more than their homes are worth, the blame lies squarely with Alan Greenspan and Ben Bernanke.

Dr. Paul is a Republican congressman from Texas.

Goodbye New Century

It's official! New Century has officially filed for Chapter 11 protection. I'm starting to get Dot-com deja vu! The question is whether the mortgage meltdown will be worse than the dot-com meltdown. I suspect that it will be considerably worse as it affects many more people. Stay Tuned!

New Century, Biggest Subprime Casualty, Goes Bankrupt
By Bradley Keoun

April 2 (Bloomberg) -- New Century Financial Corp. became the biggest subprime mortgage company to go bankrupt after the lender, which specialized in loans to people with poor credit records, was overwhelmed by customer defaults.

The company filed for Chapter 11 protection today in Wilmington, Delaware, from creditors that include Morgan Stanley and Goldman Sachs Group Inc. About 3,200 people, more than half the workforce, will lose their jobs at the Irvine, California- based company, which said it agreed to sell its mortgage billings and collections unit to Carrington Capital Management LLC for $139 million.

New Century rode the U.S. housing boom to become the largest independent provider of mortgages to borrowers with low credit ratings, only to collapse into insolvency as a rising number of customers failed to repay their loans. New Century extended about $60 billion in loans last year, second only to London-based HSBC Holdings Plc in total U.S. subprime mortgages granted.

``They're clearly going to be the poster child for bad practices in the mortgage industry,'' said Matthew Howlett, an analyst at Fox-Pitt Kelton in New York. ``When all is said and done, the management team will be to blame.''

Late payments on U.S. subprime mortgages reached a four-year high in the fourth quarter, the Mortgage Bankers Association reported. At least 30 home lenders have halted operations or sought buyers in the past 12 months, including four that have gone bankrupt since last November, according to data compiled by Bloomberg.

Now It's Time to Deal with the "Liar" Loans

It's all happening so fast that you can barely stop to catch your breath. We knew that the Alt-A mortgages were going to cause the next wave of problems in the Mortgage Industry, but things seem to be moving faster than expected. The "Wall of Liquidity" is developing some serious cracks.

M&T Shares Fall After Bank Reports Weak Bids on Alt-A Mortgages

Shares of M&T Bank Corp., the western New York bank partly owned by Warren Buffett's Berkshire Hathaway Inc., fell the most since 1998 after saying low bids for Alt-A mortgages it planned to sell will cut earnings by $7 million.

The stock tumbled $9.18, or 7.9 percent, to $106.65 at 10:30 a.m. in New York Stock Exchange composite trading.

Shares of mortgage lenders have tumbled this year as defaults on subprime loans rose to four-year highs. Companies that offer less-risky Alt-A mortgages including IndyMac Bancorp Inc. and Impac Mortgage Holdings Inc. say investors are mistaking them for subprime lenders and unfairly punishing their shares.