Liquidity and Property, part 2

From last week: … borrowers will now ONLY lend 95% of asset value to borrowers who aren’t prime and in many cases can’t/won’t document their income. Not only were they lending 100% to this category before, in many cases they were lending more than 100%. The assumption here seems to be that lending 100% today to non-prime borrowers (remember that the importance of the security or the loan to asset value becomes more significant as the credit status of the borrower worsens) will be Ok because the loan won’t go wrong and if it does then in a year’s time the asset will be worth 115% of today’s value, so a 100 or 105% loan to value doesn’t constitute risk. Consumers borrowed 100 percent of their home’s value on about 18 percent of Alt A loans (loans between sub prime and prime) made last year, according to Bear Stearns, the largest mortgage-bond underwriter. Another 16 percent had loan-to-value ratios above 90 percent as well as limited documentation, they say.
The actual lenders themselves aren’t concerned about risk because after all they’ll sell it on soon enough, but what’s forcing them to change their criteria is that the market no longer wants to touch these riskier loans or at least a smaller number of interested buyers will be paying the lenders much lower prices for them.
It’s the fact that Bear Stearns Cos., General Electric Co.’s WMC Mortgage, Countrywide Financial Corp., IndyMac Bancorp Inc., Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Credit Suisse have all said in the last two weeks they’re pulling back from buying Alt A mortgages sold with no down payment or in a refinancing of the house’s entire value that is forcing the lenders to adjust their criteria rather than the fact that there will be huge defaults. If you don’t plan to own the loan book yourself you don’t care how it performs, as long as you can sell it.
Anyone who can’t see the madness of that line of thinking probably shouldn’t be allowed out on their own.
Last year the Alt A category accounted for about 20 percent of the $3 trillion of U.S. mortgages, about the same as sub-prime loans, up from 5% in 2002 according to Credit Suisse Group, highlighting where much of the growth in US lending has occurred.
Tighter lending standards may slash sub-prime mortgage sales in half this year and Alt A mortgages by a quarter, according to Ivy Zelman, a Credit Suisse analyst in New York who covers homebuilders. The new requirements will force some prospective homebuyers to save more money for a down payment or risk being denied credit - the boom in the US property market has been fired by: 1) people and corporations being able to trade up properties and acquire properties more readily because these have been more affordable at such low interest rates; 2) people who will be able to obtain credit at some point but should currently be saving up their deposits being offered deposit free terms now; 3) people who by any logical commercial criteria shouldn’t really be able to currently obtain credit of such magnitude being offered it left, right and centre.
All of this has compressed future demand - those without deposits and whose incomes aren’t yet sufficient to service the debts or whose circumstances aren’t sufficiently robust to ride through any short-term financial storms have been given credit that will in many cases lead to defaults, repos, and damaged credit, and instead of providing an economic boost, this will become a major economic drag. The category comprised about 5 percent of new loans in 2002, according to Credit Suisse.
Late payments of at least 60 days and defaults on Alt A mortgages have risen about as fast as on sub prime ones, to about 2.4 percent, according to bond analysts at UBS AG. What a surprise - people refusing to document their ability to pay are maintaining their loans to a similar standard as those with documents signifying poor ability to pay. Loans in the category made to borrowers with low credit scores, equity and documentation are doing about as badly as sub prime loans, according to Citigroup Inc. and Bear Stearns analysts. Rapid credit tightening that’s “been isolated to the sub prime world has really migrated’’ in the past two weeks to Alt A offerings that involve borrowing nearly all of a home’s worth, said Brian Simon, senior vice president at Mount Laurel, New Jersey-based mortgage bank Freedom Mortgage Corp. Bear Stearns will finance 25 percent to 30 percent fewer non-prime mortgages this year as it tightens credit, Chief Financial Officer Sam Molinaro said on the company’s earnings call recently.
The impact here is 2-fold:
1) The market will continue to slow because the artificial stimulation of loans to people who won’t (or in the case of Alt A probably can’t) service them is going to be taken away. The market will weaken, asset values will continue to fall, better quality credit will start to suffer and defaults and repos will become more widespread. Credit will tighten in this slowing market, causing it to slow further, asset values will fall further, even better quality credit will start to suffer and defaults and repos will become even more widespread. the market will weaken even further, etc., etc. This is a difficult spiral to get out of until the market finds its floor and we don’t believe that Pimco’s Bill Gross is right in his assertions that aggressive rate cutting now can help to stem this spiral.
2) Lenders will be stuck with debt that they can’t sell profitably - many will suffer losses. Apart from the further contraction in credit that this will cause, the problems will filter through the financial system until the likes of Bear Stearns, Goldmans, etc., find their own books severely tested. We believe that there will be further corporate casualties in this market - we’re just not sure how many or how big. This could ultimately be an even greater problem than the S&L crisis and the impact on the general economy could be catastrophic.
The bottom line is that in the UK and the US too much money has been thrown (almost literally) at sectors where the growth has been too hot for too long with no regard to what will happen when the trend turns. This is also true in varying extents in economies like Ireland, Spain and Australia.
What can you do to protect/profit from this? That’s easy - Property Protector is an insurance product that protects the value of existing properties or an investment product that allows investors to gain from the falling price of properties. Which version you require depends on your circumstances but I can’t imagine that there’s anyone out there who shouldn’t be at least looking at this in some format.

The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]@mbmg-international.com.com

Snap Shots: by Harry Flashman

The 10 golden rules of daylight portraiture

Why do we take so many pictures of people? Ever stopped to wonder? We like them, we love them, we want to remember them, and so the list goes on. It makes no difference, ‘people’ shots are what we take 75 percent of the time.
Now how many of your people shots are great? How many are average? And how many are just OK and get left in the drawer? For most people, their people shots tend to be of the last category. However, do not despair, this week here are the 10 golden rules, so that you too can get results just like the local “professional” photo shop. It doesn’t depend upon what type of camera you have, it just needs you to do a little planning.
Rule 1. Walk in closer. It is the single most important tip to better portraits. Even with a point and shoot compact, walk in till the subject fills the viewfinder from the waist up.
Rule 2. If you have a camera with a “portrait mode” then use it! This is one area where I agree with the manufacturers. The portrait mode with modern cameras does work. It maximizes the settings to produce the most pleasing effect, gets rid of backgrounds and sets the exposure to allow for the best skin tones. Use it.
Rule 3. Use the flash in daylight. If you have a fancy camera with “Fill Flash” facility, then turn it on and you will see the prints you get back from the photo processor have now got sparkle and punch. If you have not, but have a flash you mount on top of the camera, use it, and select around f2.8 to f4. This will not overpower the daylight, but will give catch-lights in the eyes.
Rule 4. Look at the backgrounds. It is so easy to concentrate so hard on the subject that you do not really “see” the background, which can be confusing and cluttered. Try to keep the subject as far away as possible from all backgrounds and if you have manual mode or aperture priority mode, then set the aperture f stop at around f5.6.
Rule 5. Shoot in the early mornings or in the late afternoons. At both of these times the light is more flattering than it is at mid-day, where you will get harsh shadows cutting across the face from the nose.
Rule 6. If you have a zoom or a telephoto lens then now is the time! Using around 135 mm, this is called by some people the ideal portrait lens, then you again flatter the face and help throw the background out of focus - particularly if you have followed Rule number 4.
Rule 7. Turn the camera on its side so you have the viewfinder in portrait mode as well. People are taller than they are wide, so it makes sense to have the maximum dimension vertically, doesn’t it! By all means, take a couple of shots in the so called horizontal “landscape” view, but the majority should be verticals.
Rule 8. The nose is not the central point of any portrait. In the centre of the viewfinder there is generally a small area which you can use for getting the focus point. After you have set the focus, move the central point off the person’s nose! The more likely central point will be the mouth or chin.
Rule 9. Super trick! Use a gold coloured reflector to give the skin that healthy glow. Just glue some gold wrapping paper to a piece of cardboard about 1 meter square and get an assistant to move it so it reflects “golden glow” into the subject. This is particularly flattering for pale skinned folk.
Rule 10. With older subjects stretch a piece of nylon stocking tightly across the lens. This will act as a soft focus filter and smooth out many of the wrinkles we like to pretend we haven’t got!
Follow those 10 simple rules and you will notice a marked difference in your portraiture.

Modern Medicine: by Dr. Iain Corness, Consultant

Dengue Fever - again and again and again!

At the time of writing this column, there are four westerners in my hospital with Dengue Fever. These are not an isolated group that caught it from drinking out of damp glasses in the same bar. Today’s daily newspaper also had an item quoting 180 cases in Northern Thailand and 10 fatalities this year. That’s more than died from the SARS epidemic that had people cringing in their homes afraid to go out without a gas mask.
So, despite my previous pleas (and those of the Public Health Department), Dengue Fever and its potentially fatal variant, Dengue Haemorrhagic Fever (DHF) is still with us. The latest figures have now prompted me to repeat my advice on this subject. If you remember reading about it before, I apologize, but the subject matter is very important. This is an important ailment, that can be avoided.
However, first you should understand a little more about Dengue. It was first described in 1780 by a Benjamin Rush in Philadelphia (so it didn’t start here), when the name Break Bone Fever was applied, with the symptoms of pain in the bones and rise in temperature. The name “Dengue” came in 1828 during an epidemic in Cuba. The new name was a Spanish attempt at a Swahili phrase “ki denga pepo” which describes a sudden cramping seizure caused by an evil spirit! Let me assure you that the local brand of Dengue Fever owes nothing to spirits, evil, bottled or otherwise.
Like Malaria, the virus is carried by mosquitoes, this time by one called Aedes aegypti. The virus itself is related to Japanese encephalitis, Murray Valley encephalitis and Yellow fever, and there are four “serotypes” or subgroups of it.
The mosquito lays its eggs in water containers, preferring the clean water found in water tanks and pots, in the saucers under pot plants and even under the pet’s food dish. Inside discarded car tyres is another favourite spot. These mosquitoes are not of the adventurous type and feed during the day and spend their time within 200 meters of their hatchery. Consequently, the eradication of any local breeding areas becomes very important towards maintaining your own health, as you can see. Keep your home free from lying water for a radius of 200 metres and you’re looking good!
Simple Dengue (if you can call it that) has an incubation period of around four to seven days and then the full blown symptoms of high fever and headache begin. The headache is usually behind the eyes and is made worse by eye movement. From there the pains progress to the limbs with acute muscle pains, which gave it the old name “Break Bone Fever”. Interestingly, some patients complain of a metallic taste in the mouth. (Please don’t ask - I have no idea why!)
On the other hand, Dengue Haemorrhagic Fever can certainly be fatal! It appears that Serotype 2 may be the culprit here, but does not usually produce DHF unless you have been previously bitten by types 1, 3 or 4. In addition to the symptoms of Classical Dengue the skin begins to bruise very easily as the blood haemorrhages into the skin. Children are also more susceptible to this than adults. This also becomes much more of an emergency and is best treated in the Intensive Care Unit (ICU) of your favourite hospital.
With our ability to treat the viral ailments being very limited, the defence against the Dengue virus lies in the preventive measures. The other precautions are to wear long trousers and long sleeved shirts, especially at sun up and sun down, when the mosquito is at its most ravenous. The other factor to remember is “D” for Dengue and “D” for DEET. DEET is the magic ingredient in mosquito repellents, so when you go to buy some, check the label - if it has DEET, then get it. And then remember to use it!

Learn to Live to Learn: with Andrew Watson

Eating you up inside

Ever done anything bad? Ever done anything wrong? Ever done anything you regret? Ever cheated or lied? Ever spread falsehood? Ever stolen something? Of course you have! The fragile reality of humanity: fallibility.
The question is not whether we have or not, it’s what have we done to make amends? The capacity to demonstrate remorse, the ability to apologise, to genuinely acknowledge that we have made a mistake, requires strength of character, humility and integrity. And great beauty.
I don’t think you have to be a Christian to understand what forgiveness can and does mean, but perhaps it helps. Followers of Jesus Christ or the Buddha will tell you of the sense of wonder which accompanies true forgiveness, where desire is left behind. It is a wondrous, magical thing indeed. Take hatred for example - an evil word, an evil thought, the embodiment of darkness. Mandela, incarcerated for thirty years on account of colour showed how to defeat hatred by astounding personal example. At the root of his success was the simple understanding; that it is not only the oppressed who needed to be liberated, but also the oppressor. The oppressor also needs to be freed - from ignorance, prejudice, greed and hatred - the unforgiving guardians of misery.
But what happens to those who choose not to embark on the glorious road to spiritual liberation and instead choose to harbour evil in their hearts and stoke the fires of mischief with lies and malevolent intent? Aberrant thoughts besiege them, whilst self-delusion (the worst kind of delusion) reinforces ill-begotten prejudice and ignorance seeps like pus from septic minds.
But nature is a remarkable phenomenon indeed. The heart knows what the mind does and cannot be fooled. Metaphorically, every evil thought drops like a pollutant and infiltrates the flesh, which decays in natural rebellion against the imposition of filth. “You are what you eat,” after all. Alternatively, “You are what you drink” and as they used to say in the pubs, “And he’s a bitter man”. Over in this part of the world, I think they call it “Karma”.
Nature has a rather wonderful way of cleansing itself - time is nature’s healer - but the pathways of history are littered with the remnants of people who were determined to contest this eternal truth. All the “good books” tell you the same. Yet it’s extraordinary the lengths people will go to, nay the distances people will travel, to intentionally do harm to another, whether it’s in the shape of a B52 or other bulbous belligerence.
As a mentor of mine recently wrote, “Someone does mean, petty things invariably damages only one person - themselves.” His sage counsel continued, “In my experience keeping above the fray usually works and the other person just makes a fool of themselves.” Which kind of infers that we should leave it all to nature, or to God. It might sometimes be tempting to give God a helping hand of course, but this is a dangerous path indeed, for then we might claim that “God is on our side” and we know where that can lead. Ghandi had it about right, I reckon, when he spoke of the eternal battle of good against evil. Reassuringly, he noted that whilst tyrants might sometimes seem to have the upper hand and social justice seems a distant dream, the way of righteousness and justice in the end, has always prevailed.
There is a man I know, thoughtful and intelligent, gentle and kind, who has every reason to take umbrage with persistent falsehood spoken about him. When I asked him recently why he chooses not to defend himself, he thought deeply and then said two things. First, he would be demeaning himself by responding to slurs and dragging himself down to the level of the sewer. Second, he spoke of compassion and forgiveness for his assailant and his deep devotion to the lessons of his spiritual teaching (the persuasion of his spiritual belief in this sense, is not relevant) which requires that his ‘cup runneth over’. By which he means, of course, that you should ‘love your enemy’. This man leaves it all to God, and God, frankly, seems to ‘do the business’.
Of course it’s difficult to sit back and do nothing sometimes. Some cultures aren’t really the kind to ‘turn the other cheek’. It’s still ‘eye for an eye’ Old Testament stuff, making as Ghandi observed, ‘the whole world blind’. It requires something special indeed to break the cycle of violence, especially when determined myopics seem so keen to pour petrol on the flames. Jim Collins, author of ‘Good to Great’ talks of people ‘looking out of the window’ to blame others, rather than ‘looking in the mirror’ and taking responsibility for their own thoughts, words and deeds.
In school, I try and encourage “The Three R’s”; Respect for yourself, Respect for others and Responsibilities for your actions. A potentially empty platitude of course, unless reinforced and modelled in everyday life. The idea of taking responsibility is especially important. Look at politics; there was a time when a politician with integrity would resign when something went seriously wrong in their department, or they found themselves in either ethical or moral turmoil over the position of their government (Clare Short in the UK over the Iraq war comes to mind). But now? They seem to prefer to blame someone else, addressing the symptoms of the disease rather than the tumour itself, usually for the sake of self-preservation. Their careers, after all, (they seem to believe) are far more important to them than for instance, the “welfare of the child,” whether in Iraq or anywhere else. A morally unsustainable position of course, but one which readers must recognise from their own experiences of work and play. Yet who amongst us can truly say that we “question the spin” on the basis that what we see, hear or read, may not be true. Because at the end of a long week at work, sometimes, it’s just too much effort to do so. But before leaving it to God, we should perhaps beware of repeating the mistakes of history.
Andrew Watson is a Management Consultant for Garden International Schools in Thailand. [email protected]
All proceeds from this column are donated to the Esther Benjamins Trust. www.ebtrust.org.uk email: [email protected]
Next week: How far would you have gone?