News That Moves: Mortgage Origination, TrimTabs Data, Citadel & Fortress, Direction of Gold

RCM Comment: This story is a classic example of the misinformation that the financial news media spews on a daily basis. Yesterday, all we heard on CNBC and other networks was the excitement over the "record volume" of mortgage origination. Both the TV anchors and the interviewees talked about the 'light at the end of the tunnel'. Yet the commentary below, from a respected mortgage insider, tells the true story behind the data.
MORTGAGE ORIGINATORS ANNOUNCE RECORD VOLUME ON 11-25…NOT SO FAST I emailed a good friend at a national mortgage bank yesterday and asked…

Mark: Of all your loan locks today, how many were re-locks of loans already in process with other lenders. If it was heavy, it would show that yesterday’s massive mortgage action was not a bunch of new loans but just an aggregation of that past 30-days of production at higher rates that all moved to other lenders on the same day (today) for lower rates? I am trying to validate that on days where rates drop through the floor in a single day, very few new loans are originated. Rather all bank lose their present portfolio as borrowers and brokers go elsewhere to capture the new pricing.

David: Most were re-locks from other lenders on loans already in process. Some were refi-churns from the past 6 months originations including some of the re-locks. Another problem on days like today is that brokers lock everything in their systems without checking with their clients first because their computer tells them that John Smith can benefit from a refi if rates fall to a certain level. They lock up the loan to protect the rate and then call John Smith to find out he is delinquent, unemployed or the home value has dropped to a level at which he can’t refinance using new guidelines. Days like today feel great when they are happening but end up being costly.

TrimTabs estimates all equity mutual funds post outflow of $12.1 billion in week ended Wednesday, December 3rd
TrimTabs Investment Research estimates that all equity mutual funds posted an outflow of $12.1 billion in the week ended Wednesday, December 3rd, versus an inflow of $10.4 billion in the previous week. Equity funds that invest primarily in U.S. stocks posted an outflow of $8.3 billion, versus an inflow of $6.8 billion in the previous week. Equity funds that invest primarily in non-U.S. stocks had an outflow of $3.8 billion, versus an inflow of $3.6 billion in the previous week. In addition, bond funds had an outflow of $6.8 billion, versus an outflow of $7.4 billion in the previous week, and hybrid funds had an outflow of $2.2 billion, versus an outflow of $2.4 billion in the previous week. Separately, TrimTabs reports that exchange-traded funds that invest in U.S. stocks posted an inflow of $920 million, versus inflow of $4.3 billion in the previous week. ETFs that invest in non-U.S. stocks had an inflow $643 million, versus inflow $1.5 billion in the previous week.

RCM Comment: The theme continues with two more stories about top tier hedge funds in serious trouble. Notice the red highlighted part about the funds being forced to "dump positions."
WSJ reports a bad year for hedge-fund titan Kenneth Griffin got much worse last month. Griffin's Citadel Investment Group lost about 13% in November, bringing the Chicago hedge fund giant's investment decline this year to 47%, according to investors. Citadel's mounting losses have come from declining values of convertible bonds, bank loans and other investments as global markets strain. Much of the losses stemmed from credit holdings during the last week of the month, investors say. Continued pressure on those assets, particularly as other hedge funds fail and are forced to dump positions to raise cash, is compounding Griffin's efforts to engineer a rebound during what is by far his firm's worst year ever. Citadel, which manages roughly $16 billion, has cut about 20 employees in its trading operations in recent weeks, including some in London, and also is trimming its back-office and human-resources rolls by roughly the same number, according to people familiar with the matter. Citadel has about 1,300 employees worldwide.

Cracks are spreading throughout theFortress Investment Group, once a leading player in the worlds of hedge funds and leveraged buyouts. On Wednesday, Fortress’s shares fell 25 percent to $1.87, a new low, after the company temporarily suspended withdrawals from its largest hedge fund. Investors had asked to withdraw $3.51 billion from the money-losing fund, Drawbridge Global Macro.
But Wednesday’s slide was just the latest turn in a long, downward spiral for Fortress. The once-celebrated company has lost 89 percent of its market value over the last year as hedge funds and private equity, once lucrative businesses that helped define an era of unrivaled Wall Street wealth, have crumbled in the credit crisis.
It is a remarkable turnabout for Fortress, which less than two years ago was soaring along with the rest of Wall Street. Its debut as a public company, in February 2007, was heralded as the dawn of a new age of big hedge funds and buyout firms. Mr. Edens, a former executive at Lehman Brothers and BlackRock, and his fellow founders became instant billionaires. Their deal paved the way for even splashier initial public offerings by the likes of the Blackstone Group.

RCM Comment: Interesting view on the direction of gold prices. It is also important to understand the magnitude of the debt increase our government is creating.
Commentary From Alf Fields:
Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
Major TWO down from $1015 to $699, say $700 (a decline of 31%);
Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $700 low);
Major FOUR down from $3,500 to $2,500 (a 29% decline);
Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)
We have already blown through waves one and two. Wave three is projecting out to $3500 and wave 5 to $10,000 for an ounce of gold. This is the point. Last year we had a $400 billion deficit. Next year we will have a $2.5 trillion deficit and in the next four years a minimum of $10 trillion deficit. It is not hard now to see why the price of gold would go to $10,000 per ounce.
What this means is that the Federal government will burn the house down printing dollars which will lose value at a dizzying rate. Conveniently, this unbridled printing will allow the US government to pay all its bills domestically and to foreign holdings by simply printing away debt. This will also have a massively negative impact on all our creditor nations. I would not be surprised if they ended up in far worse shape than us.
We have seen it time after time when a big debtor runs its creditors into the ground and ends up smelling like a rose. This is most likely what will happen to the US although the citizenry will also go through some real tough times.
What to do? Find those asset classes which will hold their value during this process. It sounds ridiculous, but it is that simple and you will prosper.