The Garrett, Watts Report (Thanksgiving, 2009)

To Our Clients, Colleagues and Friends,

· Lots of you wrote in about the video of that monster wave, with many of you identifying it as being on beach in Maui . For those who missed it, go here. Also, about 30 of you wrote it to correct us on how many years it was since JFK was shot. Our only mea culpa is that it’s hard to edit your own writing. And finally we got lots of comments on those 10 things you’d want people to learn in school. Most simply pointed out that there were 11 rules and not 10.

If you’re thinking of running for public office. think twice. These photos show Arnold Schwarzenegger before and after going into politics.

The hair style has improved, but let’s not even talk about his waist. Still, as the bumper sticker says, “My governor can beat up your governor.” Sic gloria ex terminatorum. By the way, do you think that when Arnold and Maria are feeling romantic, he refers to himself as the Terminator, as in “Come here, Maria, and give your Terminator a big kiss?”

We wrote of a few lessons one should learn at college last week, and Jay Hughes of MGIC added #12: “Don’t forget this college lesson that a cheese steak, eaten at approximately 1:00 PM the day after a rough night, makes all your troubles go away.”
We’re writing an article on the back-office side of hedging. That is, a discussion of the controls you need if you’re going to sell on a mandatory basis and hedge your pipeline. Even with one of the nationally known hedging services, you’ll still need a series of controls to prevent any surprises. Many of you remember Capital Commerce, one of the more spectacular examples of a guy in secondary hiding his trades and/or lying about trades he never made. For those who don’t remember, this guy drove a hugely successful company right into bankruptcy by lying about his position, with tens of millions being lost. Whatever happened to Rod Pierce? Does anyone know?
We plan to finish the article in a few weeks, and while we know the basic sine qua non on controls (this is Latin for “without which you are really screwed”), we suspect many of you have devised some of your own ways of staying on top of secondary marketing exposure and risk. We’re very interested in what you might be doing, so send us a note about this.
The best writing about banking comes from Chris Nichols at the PCBB, and last week he noted that studies show that about 25% of customers leave their bank in the first year and 50% of those leave in the first 90 days. Discouraging, right? He also wrote that customers who sign up for two or more products are 37% less likely to leave than those with only one product.
We just listened to a Reggae CD that’s as good as anything Bob Marley ever did. It’s Moment in Time by Beres Hammond. If there’s any one minor criticism, it’s that his voice might be too smooth, almost Frank Sinatra-Brook Benton smooth. Hammond does a great job, but there’s something in his voice that says he could be a Las Vegas lounge singer, and a true reggae singer like Bob Marley would never be found at Caesar’s Palace and would never be accused of having a smooth voice. But check out this CD.
Most amazing movie of the year: 2012. It was produced by the same person who did Independence Day and The Day After Tomorrow, but this one is much, much better, showing an apocalypse that is non-stop and unrelenting. You’ll be sitting on the edge of your seat. The scene showing California sliding into the ocean is just flat out jaw-dropping.
One of thing things we introduced in our FOCIS Reports awhile back was an analysis of Secondary Market Leakage. If you build in 200 bps margin on your FHA and are only getting, say, 175, there’s a real problem there. It could be from missing commitments, mis-coding occupancy status and a dozen other things that need to be looked into. Leakage is rarely due to secondary marketing mistakes and is almost always the result of something going wrong in the operations, often doc draw or funding. Highly profitable companies have almost no leakage.
FHLMC said it may lose $500 million due to the bankruptcy of Taylor Bean. We think someone may go to jail on this one. And his initials might be L.F.
Did you notice how Germans didn’t make a big deal about the November 9, 20^th anniversary of the fall of the Berlin Wall? Hmm. Maybe it’s because November 9, 1918 was when Kaiser Wilhelm abdicated, because on November 9^th, 1923 Adolph Hitler staged his Munich beer hall putsch, or because November 9, 1937 was Kristellnacht, when Nazi thugs attacked Jews and burned synagogues throughout Germany . Maybe November 9^th is a date they’d just rather not think about.
For those of you who ask us about jumbo programs, we can’t believe you’re not selling to SunTrust! They offer (1) loan amounts to $2 million, (2) owner occupied 1-2 Units, (3) fixed Rates + 5-1, 7-1 and 10-1 ARMS, and (4) LTVs to 75%. What more could you ask for?
Good old Goldman Sachs has earned $8.5 billion for the first three quarters, and we just saw that they are paying their employees, on an annualized basis, an average of $717,000. We know the senior people make millions, but it makes you wonder if it would be worth it to work there for a year or two as a janitor.
We once commented on the opening sentence to Proust’s Remembrance of Things Past, as being the longest sentence we’d ever seen. We also remarked that we thought it was about the most over-rated book in history, so we were thrilled to see what Evelyn Waugh said when reading it, that “I am reading Proust for the first time, and it is very poor stuff. I think he was mentally defective.” YES!!!! We’ve always thought that the best advice to give kids going off to college is to never take a class where you have to read Beowulf, and we need to add to that anything written by Proust.
Did you know that students in China do twice the amount of homework per night as kids in the United States ? And looking at their overall economic strength, you need look no further than the Chinese phrase which is translates as “Hide your capabilities and bide your time.” Does anyone doubt that they will compete with us to be the #1 superpower of the future?