by Bill James, CMC
Residential Bancorp
Canton, Ohio

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NOVEMBER 2007

POTPOURRI by W H James, Jr., CMC, Board Chairman-Residential Bancorp, Canton, Ohio. October 11, 2007

The depth of the hurt in the real estate/mortgage industry disruption has surpassed nearly everyone’s expectations.  Real estate sales, especially in new construction has seen some pretty severe downward pressure.  A few columns back Potpourri suggested real estate investors with cash/financing could possibly expect a period of opportunity in early 2008.  It is looking like those that pick the right time and have a little luck could find some incredible bargains.  Timing is everything, luck helps . . . . .

Allan Greenspan during his reign as head of the Federal Reserve made several brilliant moves (excluding his wrong headed rate increases in his paranoia fighting non existent inflation ) He handled 2 stock market debacles like a magician.  As I watch today’s economy and the financial markets one of his observations in the late 90’s pegged the situation of a then torrid stock market While the world just couldn’t get enough of outrageously overpriced stocks, Greenspan characterized the purchasing frenzy as “ irrational exuberance”  He was proven correct with the subsequent market collapse of 2000 (which he again handled masterfully).  As I write this (October 6^th) the stock market has just reached a new high of 14000 and the experts are calling for it to continue to climb.  If Greenspan saw irrational exuberance then,  today’s levels must appear pure insanity!  With the financial storms and government stupidity we are experiencing today, we shouldn’t be surprised to see a one day stock market decline of 1000 points with further corrections following.

The Fed did exactly as needed in September with their ½ percent drop in interest rates The Fed needs to continue the decreases but now find themselves between a rock and a hard place.  Further cuts could create an even deeper crisis in the value of the dollar.  Our dollar is losing its glow and our bonds are severely out of favor.  This condition portends higher long term interest rates. This bunch of Congressional incompetents has done more damage to this country than would ever seem possible. Our Congress is now spending time drafting a new resolution condemning the Turkish government for “genocide” committed  against Armenians more than 60 years ago! This at a time when we need all the help we can get from the present Turkish government! These guys absolutely take your breath away! Choosing a Presidential candidate from the 2 parties today will be like picking a brain surgeon out of an institution for the criminally insane . . .

The mortgage industry has not begun the bounce back many had expected. The tragedy that is now surfacing is that many mortgage companies and even some lenders that had little or no participation in sub-prime lending have been forced out of business.

Talking to people in the industry (those in the trenches) and there are appreciably fewer of them I have found no one who will voice an opinion of when we should start a recovery. This from a group who always have opinions! One thing is irrefutable, housing is the backbone of America, families must have housing, acquiring a home requires a mortgage, an honest knowledgeable mortgage company will always be needed. One astute mortgage lender has predicted the mortgage industry would be operating at close to normal levels by late spring 2008 . . . the catch . .  He says “normal lending” will require as few as 50 to 60 percent of the lending sources that existed in 2002.  He went on to say the refinance market would represent only about 30% of the mortgage business.  Purchase money mortgages could climb to levels of 80 to 85 % of 2002 levels.  If this happens it portends a very healthy industry!  Staying power is everything.

It continues to ring true.  I still talk to Realtors, Brokers and lenders who claim their business is down only nominally.  From past experience I tend to believe them.  They never did huge volumes but were simply “steady Eddies”.

Mortgage interest rates increased on Friday October 6^th after the Gov released the “jobs report” The report showed 110,000 new jobs were created in September.  This was an expected number, what shocked the market and created increased interest rates? The Gov report for August had shown a 4000 job loss . . . . well our bumbling bureaucrat's announced that the August report had been incorrect.  Instead of a loss of 4000 jobs, they now say they made a mistake and there were actually 89000 new jobs created!  A small error of 93000.  If a corporation made an error like that, heads would roll.  They’re morons, but they’re our morons!

Our Browns . . . .. After being blown away by Pittsburg, we noted the Browns gave Jamal Lewis the ball only 11 times, ran the ball only 16 times total. Naturally this opened the gates for Pittsburg to concentrate on the pass rush . . . they responded with 6 sacks. DUH!  The next Sunday was one of the best days of my life (sports wise)  I watched a Cleveland team that for a couple of hours was a reincarnation of the Browns of old. I swear I saw Jamal Lewis‘ jersey change from # 31 to #32 for a few seconds on his Jim Brown like run. The Browns ran Lewis 27 times, he responded with 216 yards (2^nd best ever for the Browns), Cincinnati suddenly had to treat Cleveland like a real NFL football team and protect against the run! Anderson was never touched all day . . . . . It was great. Back to reality the next week . Cleveland plays the worst team to ever put on cleats, runs Lewis 15 times. Lewis averaged 4.6 yards per carry, Oakland ran the ball 41 times averaging 4.5 per carry. Oakland gained an even 100 more yards on the ground than Cleveland  I wonder, if Cleveland had run the ball the same 41 times @ 4.6 per carry they would have amassed an extra 119 yards of offense . . .  they lost by 2 points . . . Yeah it’s a stretch . . . .

Your comments wanted - email billj@bancorp.com

Bill James is Board Chairman of Residential Bancorp in Canton, Ohio and can be reached @ 330-495-6041.