Thursday, April 14, 2005

Will General Motors Bring The House Down?

GMs' stock is tanking again this morning, down to multi-year lows. This NM News site has a table showing the firms' increasing involvement in the mortgage market.

Another mortgage stock is in the news with a downgrade from Merrill Lynch, and Doral Financial is falling hard. Once again, mortgage backed securities are at the heart of the problem. "Doral shares have declined amid heavy volatility in recent weeks, as analysts fret over whether Doral is being too aggressive in valuing its securities portfolios. The shares have lost roughly two-thirds of their value since mid-January."


At 8:49 AM, Anonymous Anonymous said...

Prices out of wack.

At 8:55 AM, Blogger Ben Jones said...

The writer seems to get it. Thanks

At 8:59 AM, Blogger John Law said...

when they write the book on this bubble, I think people will be amazed that two car companies went under in a housing bubble environment. those two are just classic examples of how we've moved to a finance economy.
even GE shareholders are going to be amazed that their stock was so dependent on finance.

...Even so, CNN/Money figures that a 1% rise in rates on just half of the outstanding ARMs will cost homeowners about $7 billion a year in additional interest. To put the number “7 billion” into perspective, consider that that’s the number of people who used to work for Internet start up companies but have since become real estate agents...

One of GM’s problems is that with higher gas prices, fewer folks are interested in a new, hulking SUV. Luckily, however, lots of those people still want a fancy new garage for their Toyota Prius. That’s good for GM because GMAC is now one of the largest mortgage companies on the planet. The National Mortgage News ranked GMAC seventh of all U.S. mortgage originators last year.

In other words, GM has been yet another beneficiary of the real estate mortgage bubble.

What was that phrase Mr. Cecchetti, used? Oh, yeah, “economic distortions.”

At 9:07 AM, Blogger John Law said...

(Detecting a bubble and taking appropriate action would require the Fed to trust its judgment over that of investors who have billions of dollars on the line. "Unsurprisingly, central bankers are not comfortable making such a judgment call, " Mr. Ferguson said.)

yet they'll play the same game with interest rates?

At 9:35 AM, Anonymous Anonymous said...

The Dow Jones Home Construction Index is down another 2.5% today. Down about 12% from its early March highs.


At 9:54 AM, Anonymous Anonymous said...

IMF is worried about US finances:

They don't even mention the housing bubble. I wonder if they realize it exists.

At 10:07 AM, Anonymous lee said...

Many housing bulls think that low interest rates mean that home prices won't come down. Today's market action belies that logic. Homebuilder stocks tanking with interest rates plunging.

Mortgage rates were falling during the early '90s (from a high of 10.13 in 1990 to the low 7's by 1995). Home prices fell b/w 20-30% in SoCal during that same period---more in some areas. The actual low in mortgage rates (1993) came at a time when home prices in SoCal were in freefall and foreclosures were skyrocketing.

At some point, the nominal price of housing (and the willingness to take on more debt) becomes too onerous. Also sentiment shifts from believing that homes will continue to the sky to a concern that prices may fall. That's all it takes to reverse a market. Interest rates could fall to zero (see: Japan) and home prices could still go down.

At 10:16 AM, Blogger Mr. Naybob said...

Ben, I thought a couple of up days were due. Not so. The transports have caved in again, DJIA, Nas & NDX hit year lows today. Only the SP500 remains, if he goes below 1163 and stays there for 2 trading days, its good night Loretta...we head for Oct lows.

At 10:26 AM, Blogger John Law said...

in my marketocracy. com portfolio I'm heavily short the homebuilders and some regional banks that could be heavily exposed to the credit bubble. plus F, GM and some outrageous tech stocks...too bad my real money isn't there!

At 10:35 AM, Blogger Dave F. said...


What regional banks do you think are most likely to choke? I've been researching this and I think STI may be in for a correction. BTW: Having fun watching my Toll Brothers short today! And yes, I have real money shorted on those guys.

At 10:46 AM, Blogger Ben Jones said...

(The Dow Jones Home Construction Index is down another 2.5% today)

Yep. Check out this chart.

(They don't even mention the housing bubble. I wonder if they realize it exists)

One reason this blog exists; the "wisdom" out there thinks that if we talk about it, the bubble will burst.

(sentiment shifts from believing that homes will continue to the sky to a concern that prices may fall. That's all it takes)

That may be what we are seeing now. Historic.

John, Dave,

It has been a hard road for HB shorts, but your day may have arrived. Congrats!

At 10:56 AM, Anonymous Anonymous said...

Consumer non-cyclicals are moving up against the market. Are traders telling us something?

At 10:58 AM, Anonymous Anonymous said...

Wow! You can't tell me that chart isn't NASDAQ 5000 all over again.

At 11:22 AM, Blogger Dave F. said...

"Wow! You can't tell me that chart isn't NASDAQ 5000 all over again. "

That's a great chart isn't it? Some people are too nervous to short stocks but for these companies to continue to have banner years like they have been, pretty much everything that we're talking about on this blog would have to be wrong. I can sleep at night without any problems.

At 11:50 AM, Anonymous Anonymous said...

And it is probably the same thing with the other zombie Ford Motors. Why can they learn from their mistakes ? The credit quality of their debt paper is horrible. They are getting murdered by Toyota, Honda and Nissan on the manufacturing front. And they are getting murdered by their involvment in the real estate credit bubble on the financial side. It's a formula for a 1929 catastrophe and it's just getting worse each day.

At 12:30 PM, Anonymous Anonymous said...

Update: the Autoworkers Union just told GM that I won't renegotiate things. They said this before GM even asked them too !

This is going to get very ugly.

Is GM's crash going to kill the housing bubble or will the housing bubble kill GM ? (The latter will happen when consumers stop spending.)

At 12:36 PM, Anonymous Anonymous said...

I'm surprised that the press hasn't picked up on the relationship between GM and GMAC and RE and also the fact that people are spending record dollars on RE and that must cut into their vehicle purchasing plans. As interest rates climb, this effect will get worse.

At 12:43 PM, Anonymous Anonymous said...

"I'm surprised that the press hasn't picked up on the relationship"

they are afraid, maybe.

At 1:03 PM, Anonymous BoyInTheBubble said...

Once housing crashes, I suggest the following slogan for GM:

"General Motors. Because you can live in your car, but you can't drive your house."


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