Bank lending war stories

The following is dramatized but the facts are true.

I just had reason to talk to my county's office of records this week.  This is where they record titles, liens and other real estate related items.  I would love to be a reporter to flesh out this story because it illustrates what banks are doing - and not doing - to facilitate consumer lending.

First of all, I lucked out with the clerk I got. She was not only pleasant on the phone but extra helpful, saying that it would be OK to call her direct line to follow up and she would pre-prepare the document I needed so I would not have to wait when I got there. Wow!

Then she tells me of all the horror stories relating to banks and the information they demand from consumers. There were plenty of people scrambling to get copies of documents or proof of release of liens/judgments. Basically, they jumped through hoops yet it was not good enough for the loan officers.

One story was really good as it was a lien on a man's property. He went for a loan and was denied due to this lien. The problem was that the man lived in Michigan and the lien was on property located on Long Island. The man never lived, worked or owned anything on Long Island.  You would think the bank would work with the guy to clear it up but no.  Sorry, fella, no loan.

Next, someone needed a proof of a tax lien release and got a signed letter from the county on county letterhead and embossed with the raised county seal. Not good enough!  They wanted a book and page number where it was recorded.  Hmmm. Seems reasonable enough. They don't trust the applicant and want to search the record themselves.

The problem is that the county does not use book and page numbers for tax lien releases. It is used for some other federal judgement stuff but not what the man needed to prove. The info on the original county letter was all anyone needed to search the records.

Bottom line - do it our way or no loan. Since the county does not do it that way you would think the bank would check that out.

Last story. A lady needed to pay a debt and wanted to take out a home equity loan. She told the bank up front why the loan was needed and the bank officer said "no problem."  Wrong. The problem was the debt was a tax lien on her house. The bank will not lend is there is a tax lien in senior position to their loan - again something that makes business sense.  But did they tell that to the lady up front? No. It took more than a month for that info to reach her and by then it was too late to try another way to finance her debt. Here comes the interest and penalties.

Again, it makes sense for the bank to protect themselves. But it did not matter that the house was worth a few hundred thousand more than the mortgage, requested home equity loan and tax debt combined. Or perhaps the bank could have told the lady on day one that the lien would have to be removed by other means first.

Remember, the loan was to satisfy her tax debt and remove the lien.  The loan was rejected and even though she found other financing, the loan was past 30-days after being killed.  In other words, she had to start over with a new application. Both the chicken and the egg died.

Maybe it is regulation or just plain fear of getting stuck with bad loans but banks are not really trying, are they? I heard from a friend that their existing bank would not increase his existing home equity loan and he would have to re-finance with fees upon fees.  Nevermind the equity in the house was five times the loan needed.  He figured out a way not to need the extra cash.

Recovery my elbow.

Interest rates

Some interesting developments in the benchmark 10-year yield.

 This is the monthly going back the 1994 bull market (for yields) peak. Lots of room to rally (higher rates) before any technical resistance.

Here is a closer view on the daily chart. Short-term breakout and monthly reversal.

SH looking pretty good

A weekly chart of the S&P 500 itself does not show the inverse of what the inverse S&P 500 ETF shows.

I see a bullish divergence in weekly 14-bar RSI. If the March high is taken out.....

I'm Just Sayin'

Chop, chop, plop?

A little fun with commentary

Yesterday, the subject lne was Fat Americans. Today we have "Vince" saying he will make us skinny, one slap at a time.

But first, an excerpt from this morning's Quick Takes Pro:

Bernanke fallout sent stocks lower Thursday morning but positive developments from Greece sent them higher. Friday, Italian banks dropped sharply to send stocks lower again. And then late this morning durable goods orders sent them higher again.

Of course, this was before the stock market tanked triple Dow digits shortly after the open.

Chop, chop, chop. And now our feature presentation.

Fat Americans

This is not about the markets so feel free to skip it.

James Altucher wrote this on MarketWatch this morning. 

Everyone acts like TV is dead, as if TV is some bastard stepchild that we don’t need any more now that we are twittering away on our geo-aware mobile devices. But quietly, Google and Apple are preparing for a fight to the death that is going to bring down all the cable companies with it.

Here’s the basic idea (for those that don’t already have an Apple TV): You link iTunes, Hulu, Netflix and cable all up together with your TV and/or set-top box so you can control everything from one remote control. Then, because we are the laziest, most obese country on the planet, we can all be a little happier lying around on our couches and navigating the massive world of mega-entertainment.

I will now rant about it.  

Is this what the world is coming to? A fight for entertainment? A fight so the masses can see what others have accomplished? Someone said couch potatoes watch actors on TV live their dreams instead of going after their own dreams. I like the Daily Show but I don't need to watch it on Hulu as I eat my lunch alone.

Don't argue that all this multi-tasking helps you get more done. First of all, few people are so important that they need to make phone calls on line at the deli. Or have email that must get read between entree and dessert. Don't get me started with Twitting (you can call it tweeting) your every move and thought. I don't need to manage a photo, document and music library and link it via blue tooth to my car and iPhone.


We are getting far too caught up in the process and forgetting the product. And most of us don't even have a product.  Now that is sad.

Commodities - Cow juice edition

I guess it shows that I like to look at commodities and if eSignal had the data I'd look at all sorts of Journal of Commerce oddities (corrugated cartons, come to mind).

Here is a chart of the barely traded July milk futures contract. I cannot even get a continuous contract so this may not represent the boys in the Hood dairy (OK, that was really reaching for a pun).

The point? They tell us that milk prices are skyrocketing and this proves it.

I know you can't eat gold but I am maintain my long-term bull view on it.

Commodites thoughts

Just looking around the markets. Corn peaked last week (for now) and that may have had something to do with the Senate vote to kill ethanol subsidies. Maybe.

Check out these three charts:

This is the coffee ETN. Looks bad for bulls, great for addicts such as yours truly.

This is the sugar ETN and it looks mighty sweet (come on, you where thinking the same thing).

And here is Brent crude oil. We all know that West Texas broke down but this one makes me a lot more comfortable with my long-term bull call on energy.

The point - not all hard assets are bad. In fact, I think most are quite solid.

Feeling Heavy

Its not just me but the the stock market is feeling kinda heavy. Indicators, breadth, trend, support - all are under attack if not already bearish. And even when there are good opportunities to bounce, it does not.

Oversold after 6 down weeks - one whole day up
Hitting news lows a few days later with a modicum of positive news - a half day up

Pundits are everywhere talking up the market. "Great buying opportunity" Er, I do not think so.

But corporations are flush with cash - yes, how does that make the stock market go up if the cash is overseas?

Expanding on that, we've got June 2's "Next stop: Dow 20,000 - 10 reasons why the market will soar and June 16's"11 Reasons why Stocks will Storm back Soon," which must be better since it has an extra reason.

Horse hockey! (Col. Sherman T. Potter)

How about lots of hot IPOs? - Pandora below IPO price, LinkedIn approaching a 50% decline from its intraday high on its debut, don't even look at RENN - the Facebook of China.

It's no wonder the Facebook of Facebook is seemingly rushing to get its own IPO going.

Just ask the bond market - the 2-year yield dipped to a record low this morning. Smart money is doing exit, stage left.

The Air Is So Heavy and Dry
Strange Voices Are Saying
Things I Can't Understand

It's a Cruel, Cruel Summer
Leaving Me Here On My Own
- Bananarama 1983

NOT a morning star

I have a pet peeve when it comes to charting. It is a strange one since I am also a big fan of finding the spirit of a technical pattern when the "letter of the law" does not really work.   I hate it when people mangle patterns and see things that are not there.

As of Tuesday afternoon, the stock market has a big rally under its belt. Some might say it was the final piece to a bullish morning star pattern and proof that the market was ready to resume its bull run.

Here is the S&P 500 in mid-afternoon. Even though the day is not over, do you immediately see something suspect? More later.

A big down, day, followed by a calm day and then a big rally day are indeed the basics for a morning star. The spirit of the pattern is something like a washout, some soul searching and then the realization that it was time to buy.

Or, the tide ran out and then it rushed back in, mini-tsunami style.

First of all, day three is supposed to open weak, not off to the races at the open. The third candle is supposed to open below the close of the first candle. Consider it the last hurrah of misguided bears before the bulls come charging back.  Strike one.

In my game of pattern police, you only need two strikes. The second is volume. Where is it? What tells us the bulls came charging back? Or that the tsunami hit the beach?  Nada.

Yes, I know there is a lot of trading left this afternoon and volume could surge but so far it does not meet the spirit of the pattern.

You may argue that volume has been funky throughout the QE era and I agree in the big picture. The rally can go on for days on low volume but a reversal is different. It represents a sea change of mood and what we see here ain't it.

Bounce yes and I have targets for subscribers. But happy days are here again? I do not think so.

Low on June 17

This was posted in a public chat room so I think it is OK to repost here. From Chris Carolan:

My view is not so positive.

Food Glorious Food

A few disturbing headlines recently relating to what we already know - food prices are going up.  This, as our feckless, er, fearless leaders tell us everything is just fine.

Food prices climb further at the grocery store
We are running out of corn (within the article)
Smucker warns of spike in production costs
Food-cost-gains-to-quicken-as-nestle-whole-foods-raise-prices

Need I go on? Maybe Glen Beck "grow your own food"  advertisers are not so crazy.

Conspiracy theory? Look at this chart of corn:

Small Business indicator?

Something about this chart of Staples says that small businesses are not doing that well.

Big companies are not running down to the corner retail store to pick up 100,000 boxes for shipping their products or 10,000 ink cartridges for their invoice printers.

Swiss Roll (over)

It's not quite the same yummy jelly roll pastry somehow associated with the Swiss, which would be somehow justified if there were chocolate in it but there is not. Rather, it is the Swiss Franc, here represented  by its ETF and it does look like it wants to roll over, at least for a serious correction.

This weekly chart shows a nice triangle with breakout and test. Project the pattern height up from the breakout and mission accomplished. An overbought MACD only adds to the feeling.

More on risk off

Last week, I mentioned a few ratios covering some behind the scenes stuff relating to perception of risk. They peaked in February with the conclusion that risk was no longer in vogue. The copper/gold ratio and the junk/quality ratio were featured.

Add in the offense/defense index (subscribers know what that is and it may be in Wednesday's column so I won't write it up now) and there is yet another spin on the desire to avoid risk.

Also in Quick Takes Pro (this morning) I covered a few international markets that peaked in February. Back then, just before the Japanese disasters, I started to get quite bearish on stocks.  Although I can justify my position now, watching the market rebound like a bungee over the Snake River (you know, where Evel Kneivel gave it a go on his rocket bike) was not only painful in the wallet but it dumped an ostrich egg on my face. (Hey Kahn, you suck! - how quaint).

Battle lost, I admit. But here we are alive to fight again and this time the battle seems to be under control. I suppose the minions will agree with me when the advance-decline finally starts to fall. More likely, I'll get the love when the Dow is down 10% in "correction" territory as everyone looks in the rear view mirror.

Gloves coming off

Normally, I avoid all taboo subjects in this blog, such as politics, religion and sex, and try to keep it all about money with an emphasis on the technicals. After reading some excerpts from President Obama's excuse parade for why the economy is not recovering as planned, I can no longer keep a cork in it.  I did however, edit myself heavily so as not to get into a Democrat/Republican blame game.


Here is an excerpt from today's event:

President Barack Obama on Friday cited the earthquake disaster in Japan and high gasoline prices as headwinds that were bumps in the road to economic recovery.

My take - It's not the event its the preparation. We were not prepared.OK, Japanese supplies were limited after the tsunami but what about the years before it hit?

And high gasoline prices? Do you think it may have had a little to do with NOT exploiting our own resources?   I am all for going green but unless the Chinese and the rest of the globe stop polluting all we are doing is handicapping our economy. No, two wrongs do not make a right but wouldn't the free market build a better green mousetrap instead of artificially mandating things?

And a banking industry that is more concentrated and abusive than it was in 2007? Should have let them fail and let the free market allocate the billions of dollars dumped on those fraudsters (you know who they are). I will never forgive Comrade Henry Paulson.  I still say a temporary Bank of the USA set up to lend direct to small business and homeowners would have been far more effective.

Even today, they are not lending. And corporations are making gobs of cash while unemployment is at 9.1%. Counter intuitive? Not when you realize where the profits are made and why all that cash is not coming home to be taxed and redeployed (by corporations) in business (jobs and R/D).

Yes, it was noble to save the auto industry but at what cost? Would not new quality owners/managers running all those assets be better? Workers would work for the new company because the industry is not going to go away. Perhaps that is just my naivete.

OK, its out. You may now proceed to call me a liberal, tea party, conservative libertarian illegitimate son of Glenn Beck and Ed Schultz. (sung) Don't cry for me Johnny Boehner!

Website maintenance

My server host will conduct maintenance this evening (June 2) in a window from 10:00pm EDT through 02:00am EDT (June 3).  Total down time expected to be 20 minutes

More Risk Off

A chart introduced to me by colleague Boris Simonder also sports a peak in February as the copper/gold and junk/hi-grade bond ratios do (see yesterday's blog). The offense/defense index simply compares the performance of offensive sectors (tech and cyclicals) to defensive sectors (health and staples). I'll let you do the chart since I am short on time now - use XLY*XLK/XLP/XLV,

Anyway, it is another indicator that peaked in February, showed a solid bearish divergence in May and has been heading south ever since. 

Risk Off

There are a few ratios or even just amorphous relationships that give you the Mr. Miyagi inspired risk on/ risk off feeling. (And while I was not the first to reference the teacher from Karate Kid, neither were you so hold your comments.)

Here are two:

Copper/Gold - do a ratio chart of copper futures divided by gold futures or for you stock only types, the JJC ETN over the GLD ETF. When the ratio is rising, copper is beating gold and the feeling is that economic growth is beating hedging portfolios. That's good for the economy and usually good for stocks. It also keeps the dollar out of the equation since both commodities are priced in bucks.

Junk Bonds/Quality Bonds -Use the JNK or HYG ETF over the LQD high grade corporate. You can even use the TLT Treasury ETF in the denominator but when there is a flight to safety - as there was in 2008 - Treasuries are a different beast than just better rated bonds.

Guess what? Both peaked in February. Both ratios are falling. Both diverge from stock market trends.

Sell in May and go to the beach (If only I had a lucrative writing job).

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