- Zandi on Housing: "I think we are going see to another leg down"
- The Shrinking Middle Class
- Meredith Whitney: "This is the most bearish I've been in a year"
- Ron Paul: Outlaw Fractional Reserve Lending
- FHA Approaches The Point of No Return
- Chanos: The "cracking of state and local municipalities is coming"
- Commercial Real Estate a Big Problem Mack Says
- Rosenberg: 13% Unemployment May Be Likely
Zandi on Housing: "I think we are going see to another leg down"
Moody's Economist Now Sees 2010 as More Likely
Friday, November 20th, 2009 - By Steve Christ
Needless to say, when Mark Zandi said earlier this year that housing would find a bottom in 2009, I didn't count myself as one of the believers.
After all, as I had written time and time again, the bottom in housing was nowhere in sight.
In fact, in this article, I suggested why his forecast was on the optimistic side explaining why a bottom in 2010 would be much more likely.
Now as it turns out, even Zandi now admits he may have jumped the gun on this one.
Here's the story on that score from Bloomberg.
It's in an article by Kathleen M. Howley and John Gittelsohn entitled: U.S. Housing Recovery Delayed to 2010 as Market Wanes
"A recovery in U.S. housing will have to wait at least until next year.
The outlook for the home market dimmed this week as residential construction and mortgage applications fell and loan delinquencies reached a record.
"I don't think the housing crisis is over," Mark Zandi, chief economist with Moody's Economy.com, said in a telephone interview. "I think we're going to see another leg down."
Mortgage applications for home purchases fell to a 12-year low last week and foreclosures rose to record highs in the third quarter, according to reports from the Mortgage Bankers Association.
An index measuring November homebuilder confidence came in lower than the median forecast of 45 economists this week. The Commerce Department on Nov. 18 said residential building dropped 11 percent in October to the lowest level since April's all-time bottom.
The $8,000 federal tax credit for first-time buyers, extended by President Barack Obama on Nov. 6, drove existing home sales to a two-year high in September. At the same time, a 26-year high in unemployment is keeping many buyers out of the market and pushing existing owners into foreclosure.
"The thing that drives our business the most is job creation," Donald Tomnitz, chief executive officer of D.R. Horton Inc., said today on an earnings call. "If we look at the macro economic environment, it's not good for us."
U.S. companies have shed 7.3 million jobs since December 2007, the biggest contraction since the Great Depression, and the unemployment rate jumped to 10.2 percent in October, the highest since 1983, according to the Bureau of Labor Statistics.
The jobless rate probably will peak at 10.4 percent in 2010's first quarter, even as the U.S. economy continues an expansion that began in the third quarter, said Douglas Duncan, chief economist of Fannie Mae, the largest mortgage financier.
"You don't pay a mortgage with economic output — you pay a mortgage with a paycheck," Jay Brinkmann, MBA's chief economist, said yesterday.
Existing home prices probably will fall 12 percent this year to a median of $173,800, while the new-home median likely will tumble 8.7 percent to $212,000, according to a forecast on Fannie Mae's Web site."
Now I wonder if Jim Cramer will come clean on his bottom call...I'm not going to hold my breath on that one.
Related Articles:
Mortgage Delinquencies a Set New Record
The Brewing Trouble at the FHA
Pinto: The FHA Needs a $54 Billion Bailout
Catastrophe averted, personal bankruptcies skyrocket
Underwater Mortgages Drive the Next Foreclosure Wave
To learn more about Wealth Daily click here
Permalink | Comment on this
The Shrinking Middle Class
Tales From the Rat Wheel
Wednesday, November 18th, 2009 - By Steve Christ
I must admit there are nights when I find myself staring at the ceiling, wondering what happened. Everything used to be so different.
Most of time, I just shrug this off as old age.
But thirty years beyond my youth, I sometimes suspect that all we have earned ourselves is a place on the rat wheel—and it's spinning out of control.
If you doubt that, then you absolutely must watch this lecture given a couple of years ago by Elizabeth Warren.
Yes it is long... but it does explain the pressures faced by the shrinking Middle Class—-pressures that didn't exist back in the 1970's. You can ignore it if you like but you do so at your own peril.
Needless to say, this will be a vastly different country as the middle class recedes.
Besides, the fact is you may just recognize some of the people she's talking about.
It's an eye-opening look at what we've become by a very smart lady.
By the way, a few years later that insightful lecturer became the chair of the Congressional Oversight Panel created to oversee the bank bailout.
Not long ago she warned that "we have a real problem coming..." in regards to toxic assets.
To hear more from Elizabeth Warren click here
Related Articles:
Elizabeth Warren Warns on Toxic Assets
Strategic Defaults: 588,000 Borrowers Say "Ciao Baby"
The Madness of Extending the Home Buyer Tax Credit
There Is No Free Market in America
To learn more about Wealth Daily click here
Permalink | Comment on this
Meredith Whitney: "This is the most bearish I've been in a year"
Housing Remains a Big Drag
Tuesday, November 17th, 2009 - By Steve Christ
Here's the Meredith Whitney interview from CNBC yesterday that has Jim Cramer so upset.
In fact, Cramer was so miffed by Whitney's bearishness that he called her "an embarrassment." in his most recent piece.
Even still, the markets did manage to peak yesterday when Whitney let on that she hasn't been this bearish in a year....
As usual, Meredith makes total sense.
By the way, According to a TransUnion report released today, 6.25% of all home loans are past due 60 days or more. That's up 58 percent from 3.96 percent a year ago.
What's more, TransUnion expects delinquency to rise to just short of 7 percent for the fourth quarter, compared with 4.6 percent for the 2008 fourth quarter.
Related Articles:
Meredith Whitney Predicts "the mother of all mortgage quarters"
The U.S. housing market's 800 lb gorilla
Credit Card Companies Say "Let's Make a Deal!"
Prime Mortgage Delinquencies Double
To learn more about Wealth Daily click here
Permalink | Comment on this
Ron Paul: Outlaw Fractional Reserve Lending
More Cries From the Wilderness
Monday, November 16th, 2009 - By Steve Christ
Here's another great video from Congressman Ron Paul.
Roll the tape....
Great stuff, Congressman Paul.
By the way, if you're interested in what the Federal Reserve does and why it was created, I have dusted off a series of old stories on the central bank I wrote two years ago.
The story, of course, is long one. In fact, when I wrote it, it turned out to be a six-part series.
But I wrote them because the truth is that very few people understand where the Fed came from, why it exists, and what it ultimately means for the dollar.
In fact, I always thought that this was kind of strange considering that the Fed Chairman is often touted as being the second most powerful person on earth behind the President. And yet, I don't remember spending more than 30 minutes on it school.
So when I began to really read about the Fed, I found it all to be pretty eye-opening.
Which is exactly, I think, what John Adams may have had in mind when he wrote the following long before the Federal Reserve ever existed:
"All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation."
-John Adams
And that I guess is why I've decided to post them again in this blog.
After all, the massive decline in the U. S. dollar hasn't happened in a vacuum. And neither has the inflation that will come along with it.
So here are the six stories that first ran Gold World on September 20, 2006.
You may be surprised by what you learn.
Related Articles:
Ron Paul's "National Nightmare"
There Is No Free Market in America
Gold prices and the "new" misery index
To learn more about Wealth Daily click here
Permalink | Comment on this
FHA Approaches The Point of No Return
Reserves Fall Well Bellow 2% Requirement
Friday, November 13th, 2009 - By Steve Christ
Here's a story that I've been following for some time now. It's interesting to me because I used to be in the mortgage business. That means I kind of know where the bodies are buried.
However, that's not why you should read it.
It should interest you because when this one blows up you will be on the hook for every single penny.
You see, subprime loans never really went the way of the dinosaur. In fact, your Uncle Sam has been using FHA loans to fund non-prime borrowers for some time now—all the way up to $729,750 in some cases That's how desperate we've become to prop up home prices.
The funny thing is that we are expecting different results this time.
However, the reality is the agency expects defaults on 24% of all loans insured in 2007, and 20% of those backed in 2008.
Those by the way, were the default rates that imploded the entire sub prime industry. Go figure.
As for the FHA it looks like it's only a matter of time now before it needs to be bailed out.
From MarketWatch by Rex Nutting entitled: FHA reserves fall below 2% minimum, auditor says
"A large increase in foreclosures has pushed the reserve fund at the Federal Housing Administration to a record-low level, according to an independent review of the federal agency's books released Thursday.
The FHA's reserves dropped to 0.53% of its total insured mortgages, less than the 2% required by law. The reserves measure how much capital the FHA has beyond the funds it has put aside for expected losses over the next 30 years.
As of Sept. 30, the FHA had $31.5 billion in total reserves, representing 4.5% of its insurance in force. Read the full FHA report.
Under most economic scenarios, the reserve fund would remain positive, the independent actuarial review said. The baseline scenario assumes that home prices will fall another 6.5%, leading to a significant increase in foreclosures.
The FHA has become a major factor in the housing industry, stepping in to guarantee about a fourth of all mortgages sold in the past year. As of the second quarter, about 50% of all first-time buyers had a mortgage insured by FHA.
The FHA has become a major factor in the housing industry, stepping in to guarantee about a fourth of all mortgages sold in the past year. As of the second quarter, about 50% of all first-time buyers had a mortgage insured by FHA."
By the way, I have no doubt that at its core FHA mortgages are a great program. Unfortunately, there is not much in the mortgage world that the foolishness of the housing bubble can't drag down with it.
Related Articles:
Mortgage Delinquencies a Set New Record
The Brewing Trouble at the FHA
Pinto: The FHA Needs a $54 Billion Bailout
Catastrophe averted, personal bankruptcies skyrocket
Underwater Mortgages Drive the Next Foreclosure Wave
To learn more about Wealth Daily click here
Permalink | Comment on this
Chanos: The "cracking of state and local municipalities is coming"
A Preview of What's to Come
Thursday, November 12th, 2009 - By Steve Christ
If you want to take long dark look into the future borrowing power of the United States, you need to keep your eyes on California. After all, everything seems happen there first.
In that regard, it's kind of a preview of what's to come since the Golden State can't make ends meet either.
In fact, California is so broke that IOU's are the new state currency. As a result, the state has tried to sell $21 billion in municipal bonds over the last seven weeks alone.
The problem is there is so much of this paper on the market that yields have had to rise significantly to attract buyers. They are willing to lend, but only if the price is right.
Because of this the state recently had to pay a 4% tax-free yield on bonds maturing in 2013. That's significantly higher than just two weeks ago when the state paid a yield of 2.48% on similar bond.
Unfortunately, that's a future the United States faces someday when its lenders decide it's not worth the risk. At that point interest rates will go north in a hurry—just like they are now for Gov. Schwarzenegger.
In the meantime, the municipal bond market itself is starting to wobble a bit as one state government after another begins to feel the pinch of caviar dreams on a bologna budget.
Unlike their Uncle Sam, they just can't print their way out of their troubles.
At least not yet....Given enough time, some of them will be certainly be the next up begging for a bailout. In fact, without last year's stimulus it would have happened already.
Maybe that's why famed short seller James Chanos now has munibonds on his hit list.
"State and local municipal finance are a mess and going to get worse," Chanos told Barron's earlier this week, the "cracking of state and local municipalities is coming."
As for the states to keep an eye on, here is the list released by the Pew Center just yesterday.
It's in article on CNNMoney by Tami Luhny entitled: 10 states face financial peril
"Here's a summary of what Pew found is plaguing each of the states:
California: The Golden State's housing collapse — and resulting unemployment surge — has plagued the state's economy. The weakening economy prompted revenue to fall by nearly a sixth between the first quarters of 2008 and 2009. State lawmakers have limited ability to deal with California's massive budget gap due to several voter-imposed restrictions, including requirements that all budgets and tax increases pass the legislature by a two-thirds majority.
Arizona: The state depends heavily on a growing economy to bring in tax revenue, and lawmakers don't have a lot of leeway to address budget deficits thanks to voter-imposed spending constraints. Lawmakers relied on one-time fixes to balance its budget instead of making long-term changes.
Rhode Island: The Ocean State has among the highest unemployment rates in the nation and among the highest foreclosure rates in New England. High tax rates, big budget deficits and a lack of high tech jobs are hurting its chances to pull out of the doldrums. State government has a poor record of managing its finances
Michigan: The state never climbed out of the recession that started in 2001, and matters only became worse during the Great Recession. Two of the Big Three Detroit-based automakers went bankrupt in 2009, sending shockwaves through a state on track to lose a quarter of its jobs this decade. The recession accelerated drops in state revenue, and has left Michigan's government trying to deal with today's problems on a 1960s-sized budget.
Nevada: Nevada is one of the recession's big losers as its gaming-based economy suffered. Year-over-year revenue has fallen for two consecutive years, a record. But changing tax laws is tough because some are written into the state constitution.
Oregon: Oregon's leading industries, such as timber and computer-chip manufacturing, have been hit hard in the recession. Lawmakers have approved more than $1 billion in new taxes to keep it afloat. But voters in January will have the final say on another $733 million in new income taxes.
Florida: For the first time since World War II, Florida's population is shrinking — bad news for a budget built on new residents flocking to the Sunshine State. Lawmakers raised $2 billion in new revenue this year, but could face a similar shortfall next year.
New Jersey: The Garden State, which has been plagued by years of fiscal mismanagement, spends more than it collects in revenue. The collapse of Wall Street, which supports about one-third of New Jersey's economy, has only made matters worse.
Illinois: Since the last recession earlier this decade, the state piled up huge backlogs of Medicaid bills and borrowed money to pay its pension obligations. The state's current budget still relies heavily on borrowing and paying bills late.
Wisconsin: Wisconsin has a long history of budget shortfalls. It also borrows frequently to cover operating expenses, among other measures. Unemployment is climbing as manufacturing, the state's largest sector, sputters."
This is what happens when you would gladly pay someone tomorrow for a hamburger today.
Eventually, the bill comes due Wimpy.....
Related Articles:
Rosenberg: 13% Unemployment May Be Likely
Stiglitz Says Problems Have "Become Even Bigger"
To learn more about Wealth Daily click here
Permalink | Comment on this
Commercial Real Estate a Big Problem Mack Says
Mack-Cali Chairman Spills the Beans
Wednesday, November 11th, 2009 - By Steve Christ
Here's a great interview from CNBC this morning featuring William Mack. He is the Chairman of the Board for the Mack-Cali Realty Corporation.
In it Mack declares that commercial real estate is somewhere between "an orderly massacre and a disaster."
Roll the tape...
Good stuff, Mr. Mack.
Related Articles:
Commercial Real Estate in Crisis Mode
The Outlook for Commercial Real Estate
To learn more about Wealth Daily click here
Permalink | Comment on this
Rosenberg: 13% Unemployment May Be Likely
Lagging Indicator Huh?
Tuesday, November 10th, 2009 - By Steve Christ
According to the bulls and the party in power, unemployment is what's known as a "lagging indicator". They use that virtual mantra to convince the rest of us that all is well.
You see in their eyes it's always darkest before the economic dawn, which they insist is right around the corner. So when unemployment came in at 10.2% on Friday, talk of those figures being "rearview mirror" filled the airways.
But the larger truth is there is something to see in those figures and it's staring us down from front windshield this time not the rear.
That's because our collective magic hat is fresh out rabbits—something that wasn't true in past downturns.
For instance, when you look back at previous recessions the way out them was pretty evident. In the 80s there were taxes cuts and falling interest rates. The 90s gave us the tech revolution, while in 2000 there was room to expand housing.
Conversely, in today's world the answers to our troubles are nowhere in the picture.
Housing is falling.... Interest rates have nowhere to go but up...Higher taxes are a given....and there is no brewing innovation with the same power tech had to lift us out of our doldrums.
All that is left is a Keynesian policy response that cannot go on indefinitely.
In fact, it is complete folly to believe that trillion dollar deficits can be run up over the next couple of years—let alone the next 10. Most of us realize we cannot borrow our way to back to prosperity and in the end we won't, although it will be tried a little bit longer.
That is what makes unemployment a leading indicator this time since our gun is effectively out of bullets.
As a result, unemployment will likely get worse before it gets better. Moreover, it will linger much longer than it ever has.
How, after all, are we going to replace the 15 million jobs we have lost since the peak? And where exactly will they come from now that we've sent so many of them overseas?
In many cases, there is simply nothing to go back to.
What's worse, Americans have more than triple the debt they had in 1982, and less than half the savings. And a bigger share of them have no home equity, leaving them one pink slip away from financial ruin.
Those are tough balls to juggle in an economy that relies on consumer spending for 70% of the total spend. Those are the cold hard realties government can't fix.
What's more according to David Rosenberg, chief economist at Gluskin Sheff & Associates, unemployment may reach as high as 13%.
From Bloomberg by Vincent Del Giudice and Thomas R. Keene entitled: U.S. Joblessness May Reach 13 Percent, Rosenberg Says
"The U.S. unemployment rate may rise to a post-World War II high of 13 percent in the aftermath of the recession, said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto.
"This is going to be the mother of all jobless recoveries," Rosenberg said today in an interview on Bloomberg Radio. "At the beginning of the year, who was calling for unemployment to go up to 10 percent?"
Rosenberg said the recession, the deepest since the Great Depression, "is truly secular in nature" and said the economy is "in a post-bubble credit collapse."
A 13 percent unemployment rate would be the highest since monthly records began in January 1948, according to Labor Department data. The previous postwar high was 10.8 percent in December 1982. Yearly records, which began in 1929, show joblessness climbed to almost 25 percent in 1933 during the Great Depression.
The economy in the U.S. could rival Japan's so-called "lost decade" of the 1990s, Rosenberg said. "This has some prints of Japan in many respects," where growth stagnated for years and prices fell in the aftermath of speculation in real estate and equities, he said.
In the U.S., "20 percent of private credit is coming out of the system — and on a semi-permanent basis," as reflected in the record eight consecutive monthly declines in consumer credit through September, Rosenberg said.
Credit card, auto and other installment debt declined $14.8 billion, or 7.2 percent at an annual rate, to $2.46 trillion, according to Federal Reserve data released Nov. 6. The consecutive declines were the most since records began in 1943."
So when they tell you that there is nothing to see here and try to move you along, don't believe it for one second. The truth is staring us right in the face.
By the way, if we were calculating the unemployment figure the same way we did before it was changed by the Clinton Administration, the unemployment rate would be a hefty 17.5%.
Related Articles:
Third Quarter GDP Surprises To The Upside
Stiglitz Says Problems Have "Become Even Bigger"
Dollar Vs. Euro: An Eye on the Euro and the Hottest Indicator on Wall Street
Warren Buffett on Investing in Gold
To learn more about Wealth Daily click here
Permalink | Comment on this
Where do 6,723 brokers & analysts turn to for investment ideas?
The Wealth Daily e-Letter
Skip the middleman--and get them here first...
$1.76 Million Per Megawatt
That's the going rate for wind energy.
And in the next 10 years. . . over 446,000 megawatts will be installed.
That presents a market worth $785 billion.
Click here to learn about 3 stocks that will easily double as that happens.