Investment Contrarians

credit crisis


The Real Force Behind Cheap Housing

By for Investment Contrarians | Mar 27, 2013

Force Behind Cheap HousingThe housing market has clearly reached a bottom and is turning higher. After years of dismal sales, increasing foreclosures and short sales, and declining home prices, there’s strong optimism, which has resulted in sizzling demand for homebuilder stocks.

Yet the recovery in the housing market has been helped in a great part by heavy buying by both retail real estate investors and major institutions. According to the National Association of Realtors, cash buyers and large investors account for about 32% of home purchases across the country. (Source: Timiraos, N., “Investors Pile Into Housing, This Time as Landlords,” Wall Street Journal March 25, 2013.)

Institutional buying in the housing market has been significant. One of the major buyers has been the The Blackstone Group L.P. (NYSE/BX), which has $57.0 billion in real estate holdings and another $11.0 billion available to invest. (Source: The Blackstone Group L.P. web site, last accessed March 26, 2013.) The company started a unit called “Invitation Homes” to acquire distressed single-family homes and eventually lease them.

What is happening is that, with the major contraction in home prices being driven by foreclosures, short sales, and cheap financing rates, we are seeing a heavy flow of investors headed into the housing market, taking advantage of the homeowners who were squeezed out by the subprime credit crisis, losing their homes.

While the overall housing market has strengthened, if not for the inflow of investment money, I wonder if the housing market would have recovered at the same pace.

The housing market, especially in warm climate regions such as Florida and Arizona, has also been triggered by the inflow of … Read More


Finding Money-Making Opportunities with Bank Stocks

By for Investment Contrarians | Feb 14, 2013

Opportunities with Bank StocksThe major bank stocks all closed off 2012 near their respective 52-week highs; and they’ve started 2013 with a bang. Driven by an improving banking industry that is assuming less risky businesses while shoring up their balance sheets and producing stronger units, the KBW Bank Index is up eight percent, outperforming both the S&P 500 and the Dow Jones.

The subprime credit crisis that surfaced in 2008 and drove the U.S. and the global economy into a recession was not what we wanted to see; but in some sort of twisted way, the events have led to an industry that has restructured the way banks do business—more specifically, the amount of risk that is assumed by a bank via sophisticated strategies. So far, this shift in structure, coined the “Volcker Rule” because it was set in place by economist and ex-Federal Reserve Chairman Paul Volcker, appears to be capping the number of speculative trades made by the banks, which is good.

Banks have altered the way they do business, and they’ve shown positive strides along the way.

In my view, the operating results have been fairly good, and this indicates that the banks will be able to grow their business volume across the board during the U.S. economic recovery.

Moreover, with the housing market and the U.S. economy continuing to improve, I feel bank stocks will also see some gains.

Most of the big banks have paid back part or all of their government loans. Overall, bank stocks are showing promise and delivering better results.

While risk surrounding the bank stocks has declined, there are still issues that could hamper … Read More


Want to Know How the Big Banks Are Doing? Take a Look at Your Bank Fees

By for Investment Contrarians | Dec 13, 2012

Look at Your Bank Fees

The major bank stocks are all near their respective 52-week highs and an upside break appears to be in the works, as the banking industry continues to assume less risky businesses while shoring up their balance sheets.

The subprime credit crisis that surfaced in 2008 and drove the U.S. and global economies into a recession was not what we wanted to see; but in some sort of twisted way, the events have led to an industry that has restructured the way banks do business, specifically the amount of risk that is assumed by a bank via sophisticated strategies. So far, the change coined the “Volcker Rule,” set in place by economist and ex-Fed Chairman Paul Volcker, appears to be capping the speculative trades made by the banks, which is good.

Banks have altered the way they do business and have shown positive strides along the way.

In my view, the operating results have been fairly good, and they indicate that the banks are able to grow their business volume across the board during an economic recovery in the U.S.

And with the housing market and economy continuing to improve, I feel that bank stocks will also gain altitude.

The majority of the big banks have paid back part or all of their government loans. Bank stocks are showing promise and delivering better results.

The bank stocks risk has declined, but there are still issues that could hamper the ability of bank stocks to deliver. According to Trepp, a real-estate research service, about one out of every eight bank stocks failed the stress test. (Source: “Q2 2012 Trepp Capital Adequacy Stress … Read More


Why the Ballooning Student Debt Should Be on Your Radar

By for Investment Contrarians | Dec 12, 2012

Debt Should Be on Your RadarWe’re two weeks away from surviving the Mayan Doomsday and three weeks away from stepping over the fiscal cliff. But the unabated student loan debt is just getting warmed up. Instead of dealing with the problem, Washington’s policies continue to stoke the fire. And that economic strain spells continued misery for America’s ongoing credit crisis woes.

Outstanding student loan debt has surged 165% in just seven years, from $360 billion to $956 billion. Furthermore, the average loan balance for U.S. college students has increased more than 68% since 2005 to $27,000. (Source: “Student Loan Debt History,” Federal Reserve Bank of New York web site, last accessed December 11, 2012.)

On a more granular level, student loan debt jumped $42.0 billion, or 4.6%, over the previous quarter to $956 billion. During the same period, car loan balances increased for the sixth consecutive quarter to $768 billion. U.S. credit card debt held firm at approximately $601 billion.

Eleven percent of all student loan balances are 90 or more days delinquent, surpassing all other forms of debt. Credit cards, car loans, and mortgages are all in better shape than student loans, with 90-day delinquency rates of 10.0%, 4.3%, and 5.9%, respectively.

According to the Federal Reserve, student loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008, and it is the largest form of consumer debt outside of mortgages. What’s more is that unlike credit card debt, student debt is not forgivable in bankruptcy.

And that is creating a nightmare scenario for graduates young and old. In fact, every age group is experiencing … Read More


Folks! We Have $16.0 Trillion in Debt

By for Investment Contrarians | Oct 17, 2012

national debtWhen you scroll through the pages of Investment Contrarians, you cannot help but notice the running U.S. national debt counter that sits at over $16.2 trillion and rapidly moves higher. With every passing second, America is growing poorer and will continue to unless major changes are made, but it will be difficult. At the core of the problem is the direction of the upcoming “fiscal cliff” and its impact on the economy and national debt.

Automatic and massive budget cuts are forthcoming in January, unless an extension is made. At first, this may sound like the correct strategy but, as many of you know, cutting government spending will impact the country’s already fragile economic recovery. And what concerns me more is where the cuts will be made.

The problem is that a significant cut in fiscal spending could make the economy worse, according to the Congressional Budget Office (CBO). The CBO predicts the U.S. economy could contract by 0.5% in 2013 if the spending is curtailed. (Source: www.CBO.gov.)

While there is no indication of what areas will be affected, my feeling is that the cuts will likely be from Medicare/Medicaid, Social Security, defense/wars, and federal pensions.

Whether President Obama extends his term in office or Mitt Romney takes over, the next government has major decisions to make, including what to do with the pending budget cuts.

The media continues to focus on the debt distress in Spain and the tough road ahead for Greece, but there is seldom any mention regarding the massive and runaway U.S. debt.

Spain has a national debt of around 758 billion euros, about US$988 billion, … Read More