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Home values fall record 18.2% in past year
Prices have tumbled 25% from the peak, Case-Shiller says
By Rex Nutting, MarketWatch
Last update: 10:21 a.m. EST Jan. 27, 2009
WASHINGTON (MarketWatch) -- Home values in 20 major U.S. cities fell a record 18.2% in the 12 months ending in November, Standard & Poor's reported Tuesday.
The Case-Shiller 20-city home price index fell 2.2% in November, with home values in all 20 cities falling at least 1%. Prices in the original 10-city index fell a record 19.1% over the year.
Prices are down 25% from the peak in mid-2006, according to Case-Shiller.
In the past year, prices were down 33% in Phoenix, 32% in Las Vegas, and 31% in San Francisco. The best performance over the past year came in Dallas, where prices fell just 3.3%.
Prices fell 3.4% in Phoenix and 3.3% in Las Vegas in November.
"It is unlikely that we are anywhere near a bottom in nationwide home prices," wrote Joshua Shapiro, chief economist for MFR Inc.
The Case-Shiller index tracks repeat sales on the same properties over time, but it closely tracks only 20 cities, not the whole country.
A similar index from the Federal Housing Finance Agency released last week found prices fell 1.8% in November and 8.7% in the previous 12 months. The FHFA index tracks the whole country, but relies on data from Fannie Mae and Freddie Mac, so it missed most of purchases financed by subprime loans earlier in the decade.
Falling home values have helped to plunge the global financial system into chaos because of mortgage-backed securities. Home owners have lost trillions of dollars of wealth.
"Housing wealth is falling by some $380 billion per month, or about $370 per adult per week," wrote Ian Shepherdson, chief domestic economist for High Frequency Economics. "No wonder people are miserable."
http://www.marketwatch.com/news/story/US-home-values-down-record/story.aspx?guid=%7BAFE9CB7B%2D3CE1%2D4281%2DB5F9%2D7FF461A6EB05%7D
lentinman: OT
It must be that I sacrificed quality in my haste for quantity.
Hey maybe I could be a bank CEO...
RealtyTrac discovers 1+1 does = 2
"RealtyTrac, the online marketer of foreclosed properties, recently discovered that it has far more foreclosed properties listed in its database, which the company compiles using courthouse records, than there are listed in the multiple listing services (MLS) maintained by real estate agents."
This article Posted by: roguedolphin
http://money.cnn.com/2009/01/21/real_estate/ghost_inventory/index.htm?cnn=yes
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
And no mention about the 1,000's's's of homes that have been pulled off the markets by owner/sellers awaiting prices to stablize and start to rise.
These folks are paying the mortgage/taxes etc. "hoping" (that word again) and desperate to get out from under and probably wishing they had taken the loss a few months ago.(your first loss is usually your cheapest loss, may apply here)
And add to that, most folks cannot meet the new lending standards, come up with a down payment or even have a job to support a home.............
How long before the housing market recovers!?!?! 2009,2010,2011,2012
Oh ya lets not forget the option arms and exotic ALT-A;s that begin to reset late 09 thru 2011, many of which are jumbo loans.
http://www.calculatedriskblog.com/2007/10/imf-mortgage-reset-chart.html
And what about the 1,000's of homes that have been pulled off the markets by owner/sellers awaiting prices to stablize and start to rise.
These folks are paying the mortgage/taxes etc. "hoping" (that word again) to get out from under.
My New Spread the Wealth Grading Policy
Mike S. Adams
Monday, January 26, 2009
Good afternoon students! I’m writing you this email to announce that I’m making some changes in the grading policies I announced two weeks ago when I sent an email with an attached course syllabus. As you know, we now have a new president and I thought it would be nice to align our class policies with some of the policies he will be implementing over the next four years. These will be changes you can believe in and, I hope, changes that will inspire hope, which is our most important American value
Previously, I announced that I would use a ten-point grading scale, which means that 90% of 100 is an “A,” 80% is a “B,” 70% is a “C,” and 60% is enough for a passing grade of “D.” I also announced that I will refrain from using a “plus/minus” system – even though the faculty handbook gives me that option.
The new policy I am announcing today is that those who score above 90 on the first exam will have points deducted and given to students at the bottom of the grade distribution. For example, if a student gets a 99, I will then deduct nine points and give them to the person with the lowest grade. If a person scores 95 I will then deduct five points and give them to the person with the second lowest grade. If someone scores 93 I will then deduct three points and give them to the next lowest person. And so on.
My point, rather obviously, is that any points above 90 are really not needed since you have an “A” regardless of whether you score 90 or 99. Nor am I convinced that you need to “save” those points for a rainy day. Those who are failing, however, need the points – not unlike the failing banks and automakers that need money to avoid the danger of bankruptcy.
After our second examination, I intend to take a more complex approach to the practice of grade redistribution. I will not be looking at your second test scores but, instead, at the average of your first two test scores. In the process, I may well decide to start taking some points from students in the “B” range. For example, if someone has an average of 85 after two tests I may take a few points and give them away to someone who is failing or who is in danger of failing. I think this is fair because the person with an 85 average is probably unlikely to climb up to an “A” or fall down to a “C.” I may be wrong in some individual cases but, of course, my principal concern is not the individual.
By the end of the semester I will abandon any formal guidelines and just redistribute points in a way that seems just, or fair, to me. I will not rely upon any standards other than my very strong and passionate feelings concerning social justice. In the process, I will not merely seek to eliminate inequality. I will also seek to eliminate the possibility of failure.
I know some are concerned that my system may impact their lives in a very profound way. Grade redistribution will undoubtedly cause some grade point average redistribution. And this, in turn, will mean that some people will not get into the law school or medical school of their choice. Or maybe some day you will be represented by a lawyer – or operated on by a doctor – who is not of the highest quality.
These are all, of course, legitimate long-term concerns. But I believe we need to remain focused on the short term. I think my new system will immediately help the self-esteem of those failing or in danger of failing. It should also help the self-esteem of those who are not in danger of failing. After all, it just feels good to give – even if the giving is compelled and not really “giving” in the literal sense.
Finally, I want to note that this idea was also inspired by a former presidential candidate named George McGovern. In a debate with the late William F. Buckley, McGovern said that people who earn more money should pay more taxes. Buckley replied that the rich do pay more in taxes – and more as a percentage of their income. McGovern looked confused.
But I don’t think there’s anything confusing about our pending social responsibilities. Whether we are talking about income or grades it does not matter how much or what percentage we are giving. The question is and should always be “Can we give more?”
“You cannot bring about prosperity by discouraging thrift.
You cannot strengthen the weak by weakening the strong.
You cannot help the poor man by destroying the rich.
You cannot further the brotherhood of man by inciting class hatred.
You cannot build character and courage by taking away man’s initiative and independence.
You cannot help small men by tearing down big men.
You cannot lift the wage earner by pulling down the wage payer.
You cannot keep out of trouble by spending more than your income.
You cannot establish security on borrowed money.
You cannot help men permanently by doing for them what they will not do for themselves.”
by William J. H. Boetcker 1916
Caterpillar Record Sales and Revenues, BUT
"We have initiated actions which will remove about 20,000 workers from our business and every indirect spend dollar will be heavily scrutinized"
"Global economic conditions and key commodity prices have continued to decline significantly. Financial markets remain under stress, and our expectations for 2009 have deteriorated. Uncertainty around the depth and duration of this recession makes it very difficult to forecast sales and revenues. As a result, Caterpillar is rapidly executing strategic "trough" plans and implementing actions throughout the company to deal with a very challenging global business environment. We have initiated actions which will remove about 20,000 workers from our business and every indirect spend dollar will be heavily scrutinized. These actions support lowering our production costs in line with a 25-percent decline in sales volume and reducing Selling, General and Administrative (SG&A) and Research and Development (R&D) costs supporting our Machinery and Engines business by about 15 percent. We are encouraged by government stimulus programs and actions taken by central banks around the world to spur growth. However, economic conditions remain uncertain, and we are planning for 2009 sales and revenues to be in a range of plus or minus 10 percent from $40 billion. At $40 billion in 2009 sales and revenues, the company expects to achieve profit of $2.50 per share, excluding redundancy costs."
http://biz.yahoo.com/prnews/090126/aqm008.html?.v=68
"Ironically, though, the year that Schiff became a star prognosticator on TV was also one of the worst periods ever for his clients. In most cases the foreign markets he likes got hit even harder than the U.S. in 2008 (Australia's ASX 200, for instance, fell 41.3%, vs. 38.5% for the S&P 500), and even more surprising to Schiff, the U.S. dollar rallied strongly as investors rushed to the perceived safety of Treasuries."
Predictions from the man who forecast the meltdown
Brian O'Keefe, senior editor
Friday January 23, 2009, 10:14 am EST
A couple of years ago, when Peter Schiff first began appearing regularly on TV to warn of an impending real estate collapse that would crash the U.S. economy and stock market, he was surprised and disappointed to find that he was rarely, if ever, approached by strangers in restaurants.
"I'd walk down the streets of New York and figure, 'Gee, you know, I'm on CNBC, CNN,'" says the brash 45-year-old president of brokerage Euro Pacific Capital. "But nobody ever recognized me."
Those days, as Schiff will triumphantly tell you, are over. Perhaps no market soothsayer has had his profile raised higher over the past six months. As one of the few talking heads who loudly, relentlessly, and more or less accurately sounded the alarm about the mortgage bubble and its consequences - in the process becoming the latest bearish commentator to earn the moniker "Dr. Doom" - Schiff has suddenly emerged as a cult hero and something of a minor celebrity.
Recently he's even gone viral. One ten-minute video on YouTube that's packed with some of his "greatest hits" - with, for instance, clips of Schiff predicting a brutal recession and massive credit crunch while prominent debate partners, such as writer and actor Ben Stein and former Reagan economic advisor Art Laffer, make what now sound like laughably optimistic counterarguments - has been viewed just over a million times at last count.
But the evidence of his popularity hardly ends there. An admirer has launched a tribute website that compiles his written commentaries and weekly radio broadcasts. There's a Facebook page pushing him as a Senate candidate in Connecticut for 2010. Both of the books he's published in the past couple of years are in the top five of Amazon's list of investing bestsellers.
"And I do get recognized now," says Schiff excitedly. "In the health club. In restaurants. The other day I called Cablevision to switch my service, and the guy says, 'This isn't the Peter Schiff from CNN, is it? I'm a big fan!'"
While Schiff's mood has gotten a boost from his newfound fame and enhanced status, his outlook for the U.S. economy has only grown grimmer while watching the federal government throw unprecedented amounts of capital into circulation to prop up banks and car companies. A response, he likes to point out, that he also predicted. "I'm as negative as I've ever been," he says, "because everything the government is doing now is going to make the situation much, much worse. They're trying to reflate this bubble. All along I knew that what would potentially be fatal wasn't the recession itself but the government's response. But what they've already done exceeds even my worst-case imagination."
'Ponzi economy'
As he outlined in 2007 in his first book, Crash Proof: How to Profit From the Coming Economic Collapse, Schiff believes that the U.S. economy has become dangerously and unsustainably dependent on consumption - fueled by trillions of dollars borrowed mainly from Asian countries like Japan and China.
"We have an economy that's based on the same principles as Bernie Madoff's investments," he says. "It's a Ponzi economy. It's not real. We don't save and we don't produce anything anymore. We simply borrow from the rest of the world, and then we spend it. We've had a giant party. We bought all these plasma TVs and iPods. We remodeled our houses and took vacations. But you know what? The bills are coming in."
Schiff is predicting a wicked post-party hangover. He sees a multiyear recession ahead marked by rampant inflation, a steadily weakening dollar, soaring commodities prices, slumping U.S. stock indexes, and falling wages.
Last year Schiff was an economic advisor to the presidential campaign of libertarian Congressman Ron Paul of Texas. Like Paul, Schiff is an adherent of the Austrian school of economics, which advocates a laissez-faire approach. And Schiff's prescription for how the U.S. can dig out of our current mess comes straight out of the libertarian playbook: Shrink the government radically, cancel all bailouts immediately, take plenty of tough medicine, and let the free market do its job - however harsh it may be for, say, autoworkers in the meantime.
It's no surprise that Schiff grew up with an unconventional outlook. His father, Irwin Schiff, is a well-known longtime tax protester who has published several books arguing the illegality of federal taxes. The elder Schiff, 80, is currently serving 13 years in federal prison for various tax crimes. "My dad has basically taken a certain principled stance, and unfortunately to his detriment," says Schiff. While expressing sympathy for many of his father's views, he acknowledges the futility of his crusade. "I pay my taxes," he says.
Schiff attended college at the University of California at Berkeley - not the obvious choice for a rabid free-marketer. After graduating in 1987, he found his way to a job as a broker at Shearson Lehman. Schiff did okay there financially, he says, but he never meshed well with his bosses. He also says it bothered him that actually making money for clients seemed to be a secondary priority to racking up commissions or pushing hot stocks. In 1996 he and a partner bought an existing broker-dealer business and renamed it Euro Pacific Capital. Operating out of a small office in Los Angeles, Schiff spent those early days cold-calling potential clients with warnings about a growing bubble in tech stocks.
In 2005 he moved his headquarters to Darien, Conn. Currently Euro Pacific has just over 60 brokers in six offices around the country, and it recently had about $1 billion of clients' money invested. But Schiff is moving to capitalize on both his new guru status and the chaos on Wall Street. He has applied to become a licensed investment advisor so that he can actively manage clients' money for the first time, and he's hiring analysts to begin generating independent research.
Schiff's current investment advice is the same as it has been for years: Get your money out of the U.S. dollar and into more fundamentally sound currencies like the Swiss franc or the Singapore dollar; buy some precious metals; and buy foreign, dividend-paying stocks, with an emphasis on natural-resources companies.
Ironically, though, the year that Schiff became a star prognosticator on TV was also one of the worst periods ever for his clients. In most cases the foreign markets he likes got hit even harder than the U.S. in 2008 (Australia's ASX 200, for instance, fell 41.3%, vs. 38.5% for the S&P 500), and even more surprising to Schiff, the U.S. dollar rallied strongly as investors rushed to the perceived safety of Treasuries.
It would be wrong to think that Schiff is doubting himself or his advice, however. "None of this shocks me," he says. "Oftentimes in the short run markets are irrational. And my problem has always been that I see things too clearly and too far in advance. Other people don't understand what I do, so the markets might not validate what I'm saying right away. But they will eventually. In the end the fundamentals are going to prevail, just as they did in the housing market." Spoken like a true prophet of doom.
http://money.cnn.com/2009/01/20/magazines/fortune/okeefe_schiff.fortune/index.htm
bbotcs, I understand where your coming from, but I'm not holding my breath for anymore than a bone thrown to the masses, and business will continue as usual.
IMO. in the eyes of government we have not reached the crisis point where there is no other choice but reform, for now they experiment.
Auto Dealers Feel Strains Amid Declining Sales
By SHARON TERLEP
NEW ORLEANS -- About 1,000 General Motors Corp., Ford Motor Co. and Chrysler LLC auto dealers went out of business last year, a loss deeper than anticipated amid a crippling decline in auto sales.
The rate of decline has been so swift and deep that GM and Chrysler have backed off once-aggressive efforts to strategically downsize their vast dealer networks, sized for a time when Detroit's Big Three commanded more than 75% of the U.S. market.
While many dealers consolidated stores or voluntarily bowed out of the auto business, many left under duress. "You can't explain how depressing it is to drive past an abandoned dealership every day, how it leaves you with an empty feeling," Annette Sykora, chairwoman of the National Automobile Dealer Association said Saturday in a speech at the group's annual convention. "What is happening to the business I grew up in?"
NADA in December predicted about 900 dealerships -- including small numbers of foreign-based auto makers -- would go out of business in 2008. But Detroit's auto makers alone lost more than that, company executives said this weekend. About 300 Ford dealers closed last year, while 401 GM dealers and 287 Chrysler dealers went out of business. Consulting firm Grant Thornton estimates about 2,500 of the nation's 25,000 new vehicle dealerships will close in 2009. However, 5,000 would need to close to have a healthy level for this year's anticipated level of auto sales, the firm said this week.
"Auto makers have had these plans to reduce dealers, but the cost of implementing those schemes is intensive," Paul Melville, a Grant Thornton expert on dealer restructuring, said. "Now market conditions are forcing dealers to consolidate."
The strain is evident as thousands of dealers and their spouses convene for a scaled down convention with fewer posh parties and more sessions coaching how to stay afloat in tough times. Adding to the pressure is uncertainty around plans by GM and Ford to eliminate or overhaul several brands, including Ford's Volvo lineup and GM's Hummer and Saab brands. GM also is in the midst of a strategic review of Saturn, whose fate could range from being shut down to getting sold to franchise owners.
"There's a lot of anxiety, a lot of worry," GM sales Chief Mark LaNeve told reporters on Saturday. Eliminating dealers has been a key goal for Detroit's auto makers as they adjust to the reality of a smaller market share and contracting U.S. market.
The auto companies believe profitable, healthy dealers attract customers and create a more appealing image. Yet domestic-brand retailers sell far dealers fewer cars and trucks on average than rivals selling nameplates made by foreign-based auto makers.
In recent years, auto makers have facilitated downsizing of their networks either by helping negotiate consolidations or pitching in money to facilitate deals. It's a balancing act for the companies, which fear losing the wrong dealers in the wrong markets could cost them valuable sales.
Chrysler Vice President Jim Press said Chrysler doesn't have a target for the number of dealers that should close, but that a "Darwinian" process is occurring that will cull the number naturally. Of the 287 Chrysler dealers to go out of business last year, 92 left as part of Chrysler's strategy to get its Chrysler, Dodge and Jeep brand dealers under the same roof. The remaining 195 left for economic and other reasons.
Press said the auto maker is being less aggressive for fear of losing market share.
"We want to consolidate, but not at the risk of losing market share," he told reporters on Saturday.
GM also is less active in its dealers' affairs, in part because the cash-strapped auto maker doesn't have resources help dealers close or merge, GM's LaNeve said. The auto maker has said it plans to cull 750 of 6,450 stores from its dealer network as part of a viability plan presented to the government as part of the loan request. The reduction is not a condition of the deal.
"It costs money to consolidate," Mr. LaNeve said. "And we've slowed down the activity while we figure out our brand and nameplate situation."
Ford said the company's strategy is unchanged. Even more than closed dealerships, Ford worries drastic cost cutting at dealerships threatens the business, said Ken Czubay, Ford's vice president of U.S. sales and marketing.
"We're dealing with dealer families that have been in business 100 years," he said. Dealers, who will meet on Sunday with top auto maker executives, appealed to auto makers and lawmakers to stay out of the fray.
"When a manufacturer targets a specific number of dealers to cut, that disturbs me," Ms. Sykora, of the dealer association said. "What's the right number of dealers? The question is irrelevant. (Dealers) have the answers."
http://online.wsj.com/article/SB123289585796913341.html
Economy in free fall in fourth quarter
Worst quarter since early 1980s, and more to come
By Rex Nutting, MarketWatch
Last update: 9:23 a.m. EST Jan. 25, 2009
WASHINGTON (MarketWatch) -- The U.S. economy contracted violently in the fourth quarter, with gross domestic product falling at its fastest pace in more than 25 years, economists said ahead of what promises to be a grim week of economic news.
"Real economic activity fell off a cliff during the fourth quarter, producing a sharp drop in employment, output and spending," wrote economists at Wachovia.
And the worst part is that it's not over. Economists expect another huge decline in the first quarter, with a smaller contraction in the second quarter.
GDP is expected to have fallen at a 5.5% annualized rate in the final three months of last year, according to the median forecast of economists surveyed by MarketWatch. That would be the biggest decline since the 6.4% drop in early 1982 and one of the worst quarters in the post-World War II era.
The government will release its first estimate of fourth-quarter GDP on Friday, the culmination of a very busy week on the economic calendar. See Economic Calendar.
Other major releases will include durable-goods orders for December, home sales for December, and consumer confidence surveys for January.
In addition, economists will be watching the weekly jobless claims data for more clues about the health of the labor market. We could see first-time claims breach the 600,000 mark for the first time since the early 1980s.
None of the news in the coming week is expected to be positive.
The bad GDP story
Almost everything that could have gone wrong did after the credit crisis worsened in September.
More than 1.5 million jobs were destroyed in the quarter. Consumer spending fell again. Businesses put investment plans on hold. Home builders threw in the towel. Export markets dried up.
The only bright spot was the collapse in prices for oil and other commodities, a sudden reversal caused directly by the global slump. This has boosted consumers' spending power, but has also slammed corporate profits.
"The weakness was very widespread, with every type of final expenditure falling," wrote economist Michael Feroli of J.P. Morgan, who expects final sales to fall 5.9% annualized, which would be the third worst quarter since 1949.
According to Feroli's estimates, consumer spending likely declined at a 3.6% annual pace, about the same as the 3.8% drop in the third quarter. Business investment probably declined at a 20% pace, while residential investment plunged at a 30% pace, the worst yet in this episode. He expects nonresidential construction to fall 2%, the first decline in about three years, with bigger drops to come. And net exports are expected to fall, a big turnaround from earlier in the year when exports kept the economy above water.
The only positive contributors to GDP are expected to be government spending and inventories.
Government spending is expected to surge in the coming quarters given the huge fiscal stimulus being promised by the Obama administration and Congress.
On the other hand, inventories are expected to be a drag on growth going forward. Companies have kept their inventories lean, but not lean enough.
"Given the rate at which sales are falling, that means that the inventory-to-sales ratio is rising sharply, and production will have to fall further in the first quarter to work off the excess supplies," wrote Brian Bethune and Nigel Gault, economists for IHS Global Insight.
Every other time in the modern era that the U.S. economy has contracted more than 5% in a quarter, falling inventories have been a major reason, if not the single biggest factor. Usually, really bad recessions are worsened by the need for companies to get rid of all the stuff they made but nobody bought. Once the inventories are sold off, the economy can grow quickly again because idled workers are called back.
But so far in this recession, the inventory cycle hasn't been a major factor, outside of the housing and auto sectors. That means that we can't look forward to a quick reacceleration as the inventory cycle turns. This recession is rooted in a severe credit squeeze and a fundamental readjustment in consumer demand, not in the typical inventory cycle.
Policy to the rescue?
Most economists are cautiously optimistic about a modest recovery later this year. The turn in the inventory cycle is one reason, but a bigger cause for hope is the massive amount of work by the Federal Reserve and the government.
"Despite the current and expected near-term weakness, we caution against simply extrapolating. While momentum is currently downward, policy action has been stepped up dramatically, with more measures likely," wrote Maury Harris and Jim O'Sullivan, economists for UBS, who were among the few economists who saw this coming.
The Federal Open Market Committee meets Tuesday and Wednesday to consider the impact of what they've done and what they'll try next. Interest-rates are as low as they can go, so the FOMC will put its full attention on the nontraditional measures it's employed to thaw out the credit markets.
The conventional wisdom is that nothing has worked, but that's not really accurate. First off, governments in the developed world have made it clear that they won't allow the financial system to fail, which has lessened the fear of a systemic collapse. If what they've tried so far doesn't work, there are other things that can be done, including nationalization of the banks as a last resort.
There are signs of improvement already, especially in the short-term funding markets, where the Fed has concentrated its efforts lately. Credit spreads between government debt and the London interbank offered rate, commercial paper and mortgages are falling, although they certainly aren't back to normal levels.
Yes, the days are cold and dark, but spring will come. It always does.
http://www.marketwatch.com/News/Story/Story.aspx?guid={D87827B0-F739-42A7-A123-AEB36F40D99B}
Worst Conditions for Construction Since 1930s
Economists and others weigh in on the decline in housing starts.
Housing starts have plunged again in December to the lowest level on record (the data go back 50 years) and building permits do not suggest a recovery in January (indeed with the severe weather across much of the country in January, housing starts and permits are likely to fall again in our judgment). The level of housing construction is now extremely low relative to demographic fundamentals, however, and is being depressed by the intensification of the credit crisis and the overhang of unsold homes (including foreclosures). The actual number of homes started in December across the country (without annualization or seasonal adjustment) was a mere 37,100. -RDQ Economics
Single-family permits are the most important numbers in this report because they are accurately estimated, are not influenced by weather nearly as much as starts, and are leading indicators of future housing activity. The single-family permits numbers, which posted double-digit declines in three regions, and dropped at a double-digit rate for the third straight month, imply that single-family housing starts are likely to post double-digit declines during both January and February in every region. Conditions in the market for new homes have not been this bad since the 1930s, and they continue to worsen. -Patrick Newport, IHS Global Insight The bright spot in this report is that there is now so little new homebuilding in the pipeline that the inventory of new homes available for sale is declining rapidly. If sales stabilize over the near term - which we believe is likely given the recent plunge in mortgage rates - then we should reach a normal level of new home inventory by mid-2009. Of course, the overall stockpile of homes available for sale will continue to be bloated by foreclosure activity, which should continue to exert some downward pressure on home prices over the near term. -David Greenlaw, Morgan Stanley While builders have made dramatic cutbacks in new construction, the reality is that the bottom they are aiming at is a moving target, as will continue to be the case as long as home sales continue to decline. Despite sharp reductions in mortgage interest rates, even accounting for the bump up in the latest week's data, home sales will continue to be shackled by ongoing erosion in labor market conditions and what remain tougher mortgage lending standards. Thus, while applications for mortgages for home purchases have risen along with refinancing applications, the "success rate" on those applications remains relatively low. Given that job market conditions are likely to continue to deteriorate over the remainder of 2009, if not into early 2010, while credit markets remain in a dysfunctional state, there is little to suggest that home sales will show appreciable improvement any time soon.-Richard F. Moody, Mission Residential The intensification of the credit crunch, the collapse of Lehman and the plunge in stock prices clearly generated a huge step down in economic activity in the fourth quarter. Housing was not immune, despite already having suffered a three-year decline. We think, though, that activity is now near bottom, so the rate of decline in the first quarter will be nothing like as fast as in the fourth. We hope. -Ian Shepherdson, High Frequency Economics Although starts are the lowest in the postwar period, the same cannot be said of units under construction. There were still 823,000 units being built in December, about 200,000 more than were being built in July 1992, which is the trough for the housing downturn in the early 1990s. As a simple exercise, consider what would happen if starts leveled off at their current 550,000 per year pace, with single-family homes taking an average of 7.1 months to complete and multifamily units taking an average of 12.4 months to complete. These were the average completion times in 2007. In this scenario, homes under construction would fall to around 400,000, less than half of the current level. -Abiel Reinhart, J.P. Morgan The bottom line is that with mortgage financing severely constrained, consumers facing stretched balance sheets and a worsening labor market, and inventories of unsold homes quite high, the near to medium term outlook for housing starts is poor. The magnitude of the housing bubble was unprecedented, and the corrective process promises to be a long and painful one. We look for activity levels to continue to slip on a trend basis in the months ahead and for pricing to erode a good deal further. -Joshua Shapiro, MFR Inc. Only the Northeast bucked the downtrend as starts in that region rose slightly from an all time low in November. Building permits also fell sharply (20.4%) suggesting the housing slump will persist well into the new year. The sharply lower volume of new home construction will force more home-buyers to purchase from the existing supply of homes. But until these inventories have been depleted, builders will be hesitant to initiate new projects. Eventually, however, lower home mortgage rates should begin to spur some activity. -David Resler, Nomura Securities From the peak in building in 2005, starts are off over 75%, an incredible drop. In just one year they are off 45%. The only region that posted a gain was the Northeast, but the level is so low it hardly registers. Everywhere else, home builders were simply sitting around watching the grass grow. And conditions are not likely to change soon. Permit requests plummeted indicating the low levels of construction will be sustained for quite some time. Builders built too many homes even as sales faded and the number of houses completed and sitting around is way too high. There has been an attempt to get the supply under control but demand seems to be falling even faster. Maybe this drop in construction will accelerate the process of getting the market back into balance. -Naroff Economic Advisors
Compiled by Phil Izzo
Apartment Rents, Occupancies Drop in U.S. as Job Losses Mount
By Daniel Taub
Jan. 22 (Bloomberg) -- Apartment rents and occupancy rates declined across the U.S. West and South as the recession cost tenants jobs and forced some to combine households.
The average monthly rent dropped to $993 in the three months ended Dec. 31 from $1,002 in the previous quarter, Novato, California-based RealFacts said in a survey of 60 metropolitan areas. The occupancy rate fell to 92.2 percent from 92.9 percent.
The U.S. lost 524,000 jobs last month, capping the worst year for employment since 1945, the Labor Department said earlier this month. The unemployment rate jumped to 7.2 percent in December, an almost 16-year high. The sagging job market is one reason renters including recent college graduates are signing fewer leases, said RealFacts owner Caroline Latham.
``When the economy is good, those people spin out into households of their own as soon as they possibly can,'' Latham said. ``When the economy is bad, they're all crammed together.''
The Bloomberg Real Estate Investment Trust Apartment Index last year dropped 30 percent, compared with a 41 percent decline for the Bloomberg REIT Index, and a 38 percent slump in the Standard & Poor's 500 Index. The 16-member apartment index includes Chicago-based Equity Residential, the largest U.S. REIT that owns apartments, and Denver-based Apartment Investment & Management Co.
In the RealFacts survey, rents fell the most in Florida's Miami-Fort Lauderdale area, where they averaged $1,188 a month in the fourth quarter, down 2.5 percent from the previous three months and 2.6 percent from a year earlier.
Rents in California's Riverside-San Bernardino area fell 2.4 percent from the previous quarter to $1,129, and in the state's San Jose-Santa Clara area they dropped 2 percent to $1,674.
10,000 Vacant
About 10,000 U.S. apartments were vacant at the end of 2008, RealFacts said. The closely held research company's survey covers an inventory of almost 3.2 million units of rental housing in states including California, Florida, Arizona, Idaho, Nevada and Texas. RealFacts surveys apartment owners on a quarterly basis.
In 2008, 9,248 apartment units were added to the rental- housing supply in the markets RealFacts tracks. That compares with an average of 65,000 units per year in each of the previous 10 years, the company said.
Sales of apartment complexes with more than 100 units dropped to 386, about one-third the level in each of the previous three years, RealFacts said.
``The decline in rents and occupancy is certainly good news for renters,'' the company said in its report. ``For people who have invested in income property, the news is less welcome.''
To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.
Nice to see you back Bonsai, Now for a walk down Memory Lane,
By: BonsaiSeattle
29 Mar 2005, 09:15 AM EST
Msg. 106238 of 111276
ASTM will reload long 1.90ish
http://ragingbull.quote.com/search
http://ragingbull.quote.com/mboard/boards.cgi?board=CLB00676&startfrom=105648
Upgrading from a cardboard box,
kozuh, story is not exact..........but
http://www.snopes.com/glurge/warner.asp
MSGI, Great story thanks...eom
Obama Takes Oath of Office -Again
AP
posted: 14 MINUTES AGO
WASHINGTON (Jan. 21) - Chief Justice John Roberts has administered the presidential oath of office to Barack Obama for a second time just to be on the safe side.
The unusual step came after Roberts flubbed the oath a bit on Tuesday, causing Obama to repeat the wording differently than as prescribed in the Constitution.
White House counsel Greg Craig said Obama took the oath from Roberts again out of an "abundance of caution."
The chief justice and the president handled the matter privately in the Map Room on Wednesday night.
http://news.aol.com/main/inauguration/article/obama-takes-oath-of-office-again/313922
Vino, patty remember these
kind of a neat video.........
http://thefiftiesandsixties.com/CarsWeDrove.htm
gilead23,
"I think Rogue should be capitalized :)"
ROGUE.........
Monday 1/19/09 U.K. launches new bank bailout
DAVID STRINGER
The Associated Press
January 19, 2009 at 9:51 AM EST
LONDON — Britain announced a second rescue plan for the country's ailing banks on Monday, hoping to thaw frozen lending by offering to insure banks against large-scale losses on bad assets they already hold.
Prime Minister Gordon Brown said the government would offer to insure banks against default on toxic loans in exchange for legally binding commitments to make credit more freely available to British businesses and home buyers who are struggling in an economic downturn.
Mr. Brown and Treasury Chief Alistair Darling acknowledged that October's pledge of 37 billion pounds ($55-billion U.S.) to bail out Britain's banks hadn't done enough to encourage them to resume normal lending volume.
Mr. Brown said stimulating lending is vital to spark Britain's economy and to attempt to limit job losses as Britain tackles a recession prompted by the global downturn.
“Good businesses must have access to credit, jobs should not be lost needlessly,” Mr. Brown told reporters at his Downing Street office. “It is because of this that we are taking the action to expand lending.”
Britain's Treasury said the government will offer to insure banks against losses on about 90 per cent of specific toxic loans. The plan would require banks to identify their riskiest assets which, for a fee, could be insured with government backing.
It's hoped the offer will reduce anxiety in the banking sector about the value of past investments, boosting their confidence to offer new loans.
Neither Mr. Brown nor Mr. Darling could say how much the plan will cost taxpayers, as details won't be agreed until banks start participating.
However, the program is expected to expose taxpayers to billions of pounds of potential losses.
Mr. Brown said the “investments will be held for no longer than is necessary to ensure stability,” but could not specify how long the government expects to operate the program.
“Governments across the world are having to do all sorts of things that they might not wanted to have done a few years ago,” Mr. Darling told reporters.
Mr. Brown denied that the program amounted simply to more help from taxpayers to fix mistakes caused by irresponsible lending by bankers.
“This is not help for the banks but help for businesses and families,” Mr. Brown said, insisting that the measures would help companies looking for credit, or individuals hoping to find a mortgage to buy a home.
However, critics called the latest rescue plan a gamble, coming only three months after October's bailout.
“The U.K. government is again rolling the dice in an attempt to revive credit and breathe life back into the wider economy,” said Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers.
Mr. Brown's plan also includes efforts to boost mortgage lending and will see 50 billion pounds set-aside to create a special fund for the Bank of England to buy high quality loans and other assets directly from banks.
The government announcement coincided Monday with a report by the Royal Bank of Scotland saying its losses for the full year could be as much as 28 billion pounds, which would be the biggest loss ever by a British corporation.
Mr. Brown confirmed that the government has increased its stake in RBS to almost 70 per cent, but declined to say whether he believed the bank will eventually be fully nationalized.
RBS shares fell 25 per cent in morning trading on the London Stock Exchange, but Barclays was up 19 per cent, regaining ground lost in a late sell-off on Friday. Lloyds Group was up 1.6 per cent and HSBC was little changed.
bbotcs, Celente interview March 2009
I also listen to the Celente interview.
I have heard this 3/09 time frame referred to in a few articles recently, and would have liked to heard him go into more detail.
Here is one that I recently read........
Global systemic crisis – New tipping-point in March 2009: 'When the world becomes aware that this crisis is worse than the 1930s crisis'
- Public announcement GEAB N°30 (December 16, 2008) -
LEAP/E2020 anticipates than the unfolding global systemic crisis will experience in March 2009 a new tipping point of similar magnitude to the September 2008 one. According to our team, at that period of the year, the general public will become aware of three major destabilizing processes at work in the global economy, i.e.:
• the length of the crisis
• the explosion of unemployment worldwide
• the risk of sudden collapse of all capital-based pension systems
A whole range of psychological factors will contribute to this tipping point: general awareness in Europe, America and Asia that the crisis has escaped from the control of every public authority, whether national or international; that it is severely affecting all regions of the world, even if some are more affected than others (see GEAB N°28); that it is directly hitting hundreds of millions of people in the “developed” world; and that it is only worsening as its consequences reveal throughout the real economy. National governments and international institutions only have three months left to prepare themselves to the next blow, one that could go along severe risks of social chaos. The countries which are not properly equipped to cope with a surge in unemployment and major risks on pensions will be seriously destabilized by this new public awareness.
In this 30th issue of the GEAB, the LEAP/E2020 team describes these three destabilizing processes (two of them are described in this public announcement) and gives recommendations to cope with the surge in risks. In addition, this issue also provides the opportunity to make an objective assessment of the reliability of LEAP/E2020's anticipations and specifies a number of methodological aspects of the analytical process used. In 2008, LEAP/E2020's success rate reaches 80%, and even 86% when it comes to strictly socio-econimic anticipations. In a year of major upheavals, our teal ise altogether quite proud of this result.
The crisis will last at least until the end of 2010
Evolution of the US money base and indications of related major US crisis periods (1910 – 2008) - Source: Federal Reserve Bank of Saint Louis / Mish’s Global Economic Analysis
As we already explained in GEAB N°28, the crisis will affect in different ways the different regions of the world. However, and LEAP/E2020 wishes to be very clear on that aspect, contrary to the dominant stance today (coming from those experts who denied the fact that a crisis was coming up three years ago, who denied that it was global two years ago, and who denied the fact that it was systemic six months ago), we anticipate that the minimum duration of the decanting phase of the crisis is 3 years (1). It shall be finished neither in spring 2009, nor in summer 2009, nor at the beginning of 2010. It is only towards the end of 2010 that the situation will start stabilizing again and improving a little in some regions of the world, i.e. Asia and the Eurozone, as well as in countries producing energy, mineral and food commodities (2). Elsewhere, it will continue; in particular in the US and UK, and in all the countries depending on their economy, were the duration could approximate a decade. In fact these countries should not expect any real return to growth before 2018.
Moreover no one should imagine that the improvement at the end of 2010 will correspond to a return of high growth. The recovery will take long. For instance, stock markets will take a decade to return to levels comparable to 2007, if they ever return to that. Remember that it took twenty years before Wall Street resumed its 1920 levels. Well, according to LEAP/E2020, the present crisis is deeper and longer than in the 1930s. The general public will gradually become aware of the long-term aspect of this crisis in the coming three months and this situation will immediately trigger two tendencies carrying with them socio-economic instability: fear of the future and enhanced criticism towards leaders.
The risk of sudden collapse of all capital-based pension systems
Finally, among the various consequences of the crisis for dozens of millions of people in the US, Canada, UK, Japan, Netherlands and Denmark in particular (3), there is the fact that, from the end of the year 2008 onward, news about major losses on the part of the organizations in charge of managing the financial assets supposed to finance pensions will multiply. The OECD anticipates that pension funds will lose 4,000 billion USD in 2008 only (4). In the Netherlands (5) as well as in the United Kingdom (6), monitoring organizations recently blew the whistle asking for an emergency contribution reappraisal and a State intervention. In the United States, growing numbers of announcements call for contribution increases and benefit reductions (7), knowing that it is only in a few weeks time that most of these funds will start calculating their total losses (8). Most of them are still deluding themselves about their capacity to build up again their capital after the markets turn around. In March 2009, when pension fund managers, pensioners and governments will become simultaneously aware of the fact that the crisis is there to last, that it coincides with the « baby-boomer » generation’s age of retirement and that the markets will not resume their 2007 levels until many long years (9), chaos will flood this sector and governments will reach the moment when they will be compelled to nationalize all these funds. And Argentina, who took this decision a few months ago already, will appear a pioneer.
All the trends described above are already at work. Their combination and the public becoming aware of the consequences they could entail, will result in the great collective psychological trauma of Spring 2009, when everyone will realize that we are all trapped into a crisis worse than in the 1930s and that there is no possible way out in the short-term. The impact on the world’s collective mentalities of people and policy-makers will be decisive and modify significantly the course of the crisis in its next stage. Based on greater disillusion and fewer beliefs, social and political instability will settle down worldwide.
http://www.leap2020.eu/GEAB-N-30-is-available!-Global-systemic-crisis-New-tipping-point-in-March-2009-When-the-world-becomes-aware-that-this_a2567.html
Foreign Governments Dumping U.S. Assets
January 18, 2009
The TIC (Treasury International Capital) data was released for November today, and it was not pretty.
Net foreign purchases of long-term U.S. securities were negative $56.0 billion. Of this, net purchases by private foreign investors were negative $18.9 billion, and net purchases by foreign official institutions were negative $37.1 billion.
This marks the third time in four months that foreign governments and institutions sold US Long Term securities. These are defined as treasury bonds, agency bonds, corporate bonds and equities. Foreign entities dumped 92.6 billion dollars of US long term securities in the past 2 months, and foreign governments sold US long term assets in everyone of the last 4 months for a combined 69.3 billion dollars.
I have no idea how long the treasury market is going to continue to whistle past the graveyard, but it is becoming increasing clear that foreign governments may not be interested in continuing to finance US deficits. This is the elephant in the room for the treasury market and the dollar. Watch these numbers carefully.
Disclosure: Long TBT, Euro.
Treasury International Capital System - Home Page
Statistics -- U.S. financial accounts with foreigners {excludes direct investment}
http://www.ustreas.gov/tic/
It's Not !!!!, da-n your right, I do need new glasses.
Fred what part of Fla. are you in, I have two sisters that are in Largo.
Was -6F @5:45am here on CofC yesterday, sure could use some of the global warming to show up about now.
I don't know why they just didn't shut the markets down until Wednesday, anyone working with access to a tube will be watching the inauguration anyhow and no work will get accomplished.
I posted in once and when I checked later it was not there so I did it again than they both appeared.
It will be interesting to see what Tuesday brings when Obam says I do.
Markets closed Monday 19, Martin Luther King Day
California May Delay Tax Refunds, Other Payments
By STU WOO
California moved closer to delaying tax refunds and other payments to preserve dwindling cash in the state, in a new indication that the state's budget crisis is worsening.
State Controller John Chiang announced Friday he would take the action beginning Feb. 1, unless California lawmakers come up with an agreement to close a projected $42 billion budget deficit by mid-2010. Republican Gov. Arnold Schwarzenegger and the Democratic-controlled legislature have been deadlocked for weeks over how to resolve the budget crisis in the nation's most populous state.
Among the payments Mr. Chiang said he would order delayed for 30 days include the tax refunds due to millions of individuals and businesses. He said the state would also delay payments to state vendors, local governments expecting aid for social programs, and individuals expecting rent or food assistance.
"Let me make this point," Mr. Chiang said at a press conference in Sacramento. "Delaying these payments will hurt real people, many of whom are barely hanging on in these tight times."
http://www.latimes.com/news/local/la-me-tax-refunds7-2008jan07,0,7471181.story?track=rss
Markets closed Monday Jan. 19, Martin Luther King day
First Quarter Layoffs: Selection of Job Cuts by Major Companies
1st 1/4 09 and counting.......
http://blogs.wsj.com/economics/2009/01/08/first-quarter-layoffs-selection-of-job-cuts-by-major-companies/?mod=djemalertNEWS
4th 1/4 08
http://blogs.wsj.com/economics/2008/12/04/fourth-quarter-layoffs-selection-of-job-cuts-by-major-companies/
Is Bank of America the Next “Citi”?
Posted: 15 Jan 2009 07:42 AM PST
by Joshua Rosner
Joshua Rosner is a managing director at the independent research consultancy Graham Fisher & Co., where he advises regulators and institutional investors on housing and mortgage finance issues
The Department of Treasury sent out an announcement at 5p.m. yesterday titled:
“Treasury Provides TARP Funds to Local Banks”. Most recipients of last evening’s email announcement probably left it unopened in their inbox or went further and erased it. It would be understandable for most to think that it was unimportant news that Treasury gave money to the ‘First National Bank of Tinytown USA’.
Had more people opened it they would have realized that Treasury has given Bank of America and the American Express Company previously promised money. Even with a shiny new $10 billion from Treasury, the money that they receive for closing the
ill-fated Merrill acquisition, I believe it all but certain that the Company will end up back on the Treasury’s soup kitchen line. The Government, in repeating their mistake with
Freddie Bear, Lehman and Citi, appears to have missed the chance to require BofA to raise capital and it now appears they are ‘ours’.
Ultimately, I expect larger than expected losses will come from inadequate reserves relative to the risks in BofA’s HELOC, construction, commercial real estate and commercial loan books and also from the poor timing and likely worse modeling of their acquisitions of Countrywide and Merrill Lynch. Given our economic outlook, it seems reasonable to consider BofA may be the next ‘Citi’. I do wonder if the Government will approach things differently or take on their obligations without forcing BofA equity holders to relearn the forgotten price of poor risk-taking in investments. I also wonder if the government has learned it’s lesson or will it again push for non-workable openmarket mergers of toxic, asset-laden, institutions.
“So, what is the number” one might ask. Any attempt to answer that would be the result necromancy and not analysis. Neither BofA nor Merrill detailed their structured exposures well enough for investors to analyze the appropriateness of the values assumed in their marks or to assess the asset sensitivity to further economic weakness. Moreover, we do not have enough granularity to assess the sector exposures of their commercial real estate, their construction lending or their commercial loan books. Moreover, we believe the real economic fallout is just beginning and, as unemployment rises, losses will become a moving target.
At the time that BofA took a strategic stakeout position in Countrywide, I stated that it appeared they were making a bet they could pick a bottom in the housing market. I made it clear I was analytically on the other side of their housing outlook. It appears they wrongly believed the housing market and broader economy wereindependent of each other.
The speed with which BofA swooped into their Countrywide backstop suggested that they failed to do a thorough due diligence. Given the terms, I could not believe they properly modeled how bad losses would get due to Countrywide’s shoddy underwriting or the probability of increasing costs and in their servicing business.
Countrywide was the pioneering player that grew for much of this decade by taking risky mortgage products, designed and tested in California (often by other California players), and going on the road to sell those products door to door across our country. They were at the forefront of the now proven to be false belief that: ‘once we sell the mortgage to an investor or guarantor, either through private label securitization or GSE guarantees, we no longer own the risk’.
By the time that BofA stepped into the morass and committed to fully take Countrywide they indicated they might not assume all of Countrywide’s debt. Perhaps they realized that they had miscalculated the level of losses, but also seeming to believe we were closer to an economic bottom than we were. At the time BofA also appeared to expect that, as the largest originator of conforming conventional loans, they would benefit in recovery because the GSEs wereincreasingly ‘the only game in town’.
We now know that even if the GSEs were the only game in town that game is now a schoolyard pick-up game and unable to offer much to a former major league player. We also know that the GSEs, by being the only game, seem to have increasing leverage in their put-backs of bad loans.
GSE seller-servicer agreements suggest the GSEs claim the right to push losses onto servicers in cases where mortgage insurers choose not to, or are unable to, pay for any reason, Unconfirmed sources suggest the GSEs are making claims that lenders were specifically instructed not to use those systems as the basis for their own lending decisions and using those standards as the basis to put loans back to various originators.
While these risks seem to expose more than just BofA, their size and ties to the GSEs seem to suggest they are perhaps the most exposed.
Beyond significant problems in Countrywide’s residential and commercial mortgage businesses are the risks of growing losses in BofA’s Merrill Lynch acquisition and in their own commercial and construction books. I would suspect that by late in the second quarter we will begin to recognize that commercial, construction and corporate loans will be defaulting, industry-wide, in hockey-stick form. If there is one-thing BofA shareholders can be thankful for it is that GE Capital had purchased Merrill’s middlemarket commercial financial arm in late 2007. As the problems continue their transition from capital and credit market issues to an ongoing rationalization of capacity in the real economy we will be increasingly unable to sneak $10 billion of taxpayer money to ‘band-aid’ deeply troubled financial institutions.
We will also recognized that, as Japan learned almost two decades ago and equity holders should have recognized long ago, consolidating bad banks with worse banks without first
stripping away their combined bad assets is a recipe for long term deflation.
Circuit City to liquidate stores, and 30,000 jobs
Circuit City to liquidate remaining US stores
By MICHAEL FELBERBAUM and VINNEE TONG, AP Business Writers Michael Felberbaum And Vinnee Tong, Ap Business Writers – 13 mins ago
Circuit City Stores Inc., the nation's second-biggest consumer electronics retailer, said Friday it had run out of options and will be forced to liquidate its 567 U.S. stores. The closures could send another 30,000 people into the ranks of the unemployed.
"This is the only possible path for our company," James A. Marcum, acting chief executive, said in a statement. "We are extremely disappointed by this outcome."
The company had been seeking a buyer or a deal to refinance its debt, but the hobbled credit market and consumer worries proved insurmountable. And bleak holiday sales results further weakened even the stronger retailers.
Circuit City said in court papers it has appointed Great American Group LLC, Hudson Capital Partners LLC, SB Capital Group LLC and Tiger Capital Group LLC as liquidators.
"Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders," Marcum said.
Shareholders are likely to receive nothing, as is typical in bankruptcy cases. It was unclear what would happen to the company's 765 retail stores and dealer outlets in Canada.
Circuit City filed for Chapter 11 bankruptcy protection in November as vendors started to restrict the flow of merchandise ahead of the busy holiday shopping season.
It had been exploring strategic alternatives since May, when it opened its books to Blockbuster Inc. The Dallas-based movie-rental chain made a takeover bid of more than $1 billion with plans to create a 9,300-store chain to sell electronic gadgets and rent movies and games. Blockbuster withdrew the bid in July because of market conditions.
Circuit City, which said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31, said in its initial filings that it planned to emerge from court protection in the first half of this year.
Under court protection, Circuit City has broken 150 leases at locations where it no longer operates stores. The company already closed 155 stores in the U.S. in November and December.
U.S. Bankruptcy Judge Kevin Huennekens had given the company permission to liquidate if a buyout was not achieved.
The liquidation is the latest big blow to the nation's malls, which have suffered from a rise in vacancies as a slew of chains from Mervyns LLC to Linens 'N Things have liquidated. But analysts say that the demise of Circuit City, whose stores range in size from 20,000 to 25,000 square feet, will hurt the fortunes of mall operators even more.
"It will bring to market a glut of big box spaces across the country," said John Bemis, head of Jones Lang LaSalle Inc.'s retail leasing team. "It will have one of the largest impacts on big box real estate across the country."
___
"Separately, the FDIC said it's going to extend its temporary liquidity guarantee program to up to 10 years, from a current three years."
Merriam-Webster
What Is Temporary?
: lasting for a limited time
So all these Fed./Tres. loans and guarantee's could actually be "temporary" for a couple hundred years.........??
http://www.marketwatch.com/news/story/US-stock-futures-up-400/story.aspx?guid=%7B438E6794%2DF65C%2D49A7%2DAB79%2D85BEC7CE29ED%7D
ldcj48,
"Gotta have taters to dump the gravy on to sop the biscuit with...and yes, I eat vegetables, collard greens seasoned with fatback, string beans seasoned with bacon grease and sweet potatoes seasoned with marshmallows."
I like the way you think...ahhh "eat"
The Perils of the ProShares UltraShorts
01/13/09 - 02:16 PM EST
Editor's note: This column is by Eric Oberg, who worked in fixed income, currencies and commodities for Goldman Sachs for 17 years before retiring as a managing director.
One of these days in your travels, a guy is going to show you a brand-new deck of cards on which the seal is not yet broken. Then this guy is going to offer to bet you that he can make the jack of spades jump out of this brand-new deck of cards and squirt cider in your ear. But, son, do not accept this bet, because as sure as you stand there, you're going to wind up with an ear full of cider.
FXP DOWNI was amazed at how much discussion my piece and subsequent Q&A on levered, short-sided ETFs generated, particularly for a holiday launch. We received a number of comments at RealMoney and TheStreet.com about how this helped to explain the perplexing (under)performance of these securities -- and the chat rooms were abuzz.
For the chat-roomers, let me clear up one thing -- contrary to speculation, I am not a disgruntled loser in these things; I have never bought or sold a "bear" or "bull" levered ETF. Their construct has fatal flaws, and you can do what these set out to accomplish much more efficiently in a margin account.
In reference to the quote at the top, you will not catch me uttering, "Daddy, I've got cider in my ear," as Sky Masterson did after being hoodwinked into a bet as to whether he could get Sgt. Sarah Brown of the Save-a-Soul mission to accompany him on a dinner date to Havana, Cuba. Yet many professionals, who have been deemed "smart money," may feel like invoking that very line as they towel their ears dry.
A couple of interesting news articles hit the streets Monday, and they sadly highlight how some of the smart money has been gaffed by these. I mentioned that these products are really marketing gimmicks and not created for professionals, so I was stunned when I saw some professionals get suckered in.
Barron's current edition of "The Roundtable" has a review of the 2008 professionals' picks. At the beginning of 2008, Marc Faber made the prescient call of being short China. He recommended two ways to do so: short the iShares FTSE/Xinhua 25 Index (FXI Quote - Cramer on FXI - Stock Picks) ETF (which was down 46.7% -- nice call) or to buy the ProShares UltraShort FTSE/Xinhua China 25 (FXP Quote - Cramer on FXP - Stock Picks) (the double short on the same index which the FXI is long). The FXP ended up being down 57.2% ... whoops! We saw the same thing with the ProShares UltraShort Real Estate (SRS Quote - Cramer on SRS - Stock Picks) -- the 2 times levered ultra short fund ended up doing worse than being long the very index that was down ~40%. Wrong execution of the right idea.
The second article of interest was in the morning's Financial Times. This was an article on the hedge fund Harbinger, and how it had thrown up "the gate" and restricted redemptions. The article went on to describe how Harbinger got the subprime call right, and through six months of 2008 was up more than 40%, yet closed the year with a 27% loss.
More on ETF ETFs That Have Fallen and Can't Get Up'Cubes' Drops Into 'Also Ran' TerritoryImproved Returns Cast Mirage on ETF MarketWhere There's Yield, There's RiskRevenueShares Fund Is Ripe for RallyWhy Short Sector ETFs Aren't So SmartDon't Dismiss Down-and-Out CanadaWisdomTree Puts Twist on Large-Cap IndexAlternative Energy, Asia Funds ReboundNew Funds Provide Triple Whammy Market Activity ProShares:UlS OIl Gas| DUG DOWNiShares:FTSE/Xinhua| FXI UPProShares:UlS FTSE/XC25| FXP DOWNA lot of the chat rooms associated with these levered ETFs pointed to Harbinger's ownership of the ProShares UltraShort Financials (SKF Quote - Cramer on SKF - Stock Picks) ETF as a validation of these securities as a smart buy (Harbinger owned 3.5 million shares as of Sept 30, 2008, according to the 13-F filings). I wonder now, in light of the second-half performance, how Harbinger feels about the efficacy of this position vs. employing the capital elsewhere.
On the message boards, several people said, "Oberg just doesn't know how to trade these things -- you have to know how to ride the bumps." That is simply a naïve intellectual position to take. Maybe I could have chosen a measurement point that reflected outstanding performance (note: my dates were entirely coincidental ... I just started examining these things right around Thanksgiving), but it really doesn't matter. An efficacious trade or hedge should perform more or less in line with expectations, regardless of the point in time of measurement. If you cannot measure it at any point in time and have it perform as would be expected, then you are in an inefficient positional expression of a view. If you cannot admit that, then you are rationalizing. When you rationalize a position, nine times out of 10 you will lose money.
I stated in the original piece that there are only three reasons someone would buy these:
they are uninformed (and indeed, the Journal of Finance research piece I referenced, which was co-authored by someone at the SEC, showed that reduction in margin requirements leads to increase in uninformed traders),
they are trying to circumvent the margin rules, or
they are attempting to manipulate the markets.
The fact that professional investors could get caught up in these is just mind-boggling to me. Let's give them the benefit of the doubt, and assume that they are not attempting market manipulation -- I'll leave that up to the regulatory bodies to sniff out. (As a parenthetical aside, I will also choose not to debate whether a fund's potential pro rata contribution measuring anywhere from 10% to 40% of a stock's daily volume is meaningful or not (it is...).) Let's also assume that these larger "sophisticated" investors do not need to circumvent the margin rules, as they should have some access to capital, somewhere, if they truly are legitimate and deserving of their "2 and 20." So maybe that just means they are uninformed.
Leaving aside the oxymoronic concept of aggressively shorting a passive basket of stocks -- I mean, c'mon, if you are so convicted that you want to lever a short, how about a little selectivity? -- let's see if they could have figured this out, and indeed whether an ordinary retail investor could have figured out the dramatic failure of these instruments in advance.
My guess is, unfortunately, they must not have read the offering docs; it just viscerally sounds so good -- "Wow, a product that easily allows me to be 2 times short an index!" Yes, even the "sophisticates" can fall prey to gimmicks. But even still, what if they had read the offering docs?
I have just finished rereading the 165-page prospectus for one of these funds. It is my opinion that in no way, shape or form have they adequately disclosed the volatility risk -- in fact, they have a longer passage for risk associated with foreign investments than they do this concept of volatility eating away at returns outlined in my prior pieces. The "Statement of Additional Information" goes into a little more detail, but is still insufficient to explain the miserable failure of these as a term trade or hedge.
I believe the purveyors of these products were careless, reckless and perhaps even grossly negligent in disclosing the risks. Either they were a) completely clueless as to how dramatically these could underperform due to volatility (in the prospectus, they use 15% volatility and show underperformance of 70 to 220 basis points ... in the 68-page "Statement of Additional Information," they show volatility of up to 40% and underperformance of ~900bps, with the index down 40% ... nowhere remotely close to the underperformance we have seen), or b) they knew that performance looked horrendous at high volatilities but chose not to disclose. Given they show the tremendous potential outperformance of these if volatility is very low, my guess is they knew exactly what it would look like in the type of volatility environment we have seen, thus making "b)" more likely ... but, then again, if they knew of this risk, they'd disclose it more thoroughly, right? To be fair, I have no idea which is the case, but this raises my eyebrows a bit.
Furthermore, the purveyors simply highlight that these seek to replicate (plus or minus 1 time or 2 times) the daily returns, and that they "do not seek to achieve their stated investment objective over a period of time greater than one day" ... despite presumably knowing full well people do not view mutual funds as one-day holds. Indeed, investors are sent a prospectus when they execute a trade, meaning that there is at least three days' price risk before they even get the prospectus, and that alone is enough to cause damage.
In my mind, that is kind of like advertizing on the side of a cigarette box, "Not smoking these may have health benefits" instead of "Smoking these may be hazardous to your health." Both are true, but one does not fully disclose the risks of using the product. Maybe the cover of the prospectus should just say, "This product probably won't do what you think it'll do."
As I said -- viscerally, these sound quite appealing. But their performance is more painful than a random walk. Nothing hurts more than being right but at the same time losing money -- I mean, Marc Faber and Harbinger must be horrified to see their names forever in print next to these gimmicks (at least the individual investor can remain anonymous). The sad thing is that anyone with a margin account can create a far, far more efficacious position to reflect bearish views. And for these professionals, there really is no plausible excuse but laziness.
For those who argue, "Yes, but I've made so much money trading these" -- I'll tell you what: I will start an ETF based on an index linked to a random number generator. Whenever it is up and you are in the money, you can sell it and tell everyone in the chat room of your genius in knowing how to "ride the bumps." But for everyone else: If someone shows you a brand new deck of cards, on which the seal is not yet broken...
Debunking the UltraShort ETFs Myth
Posted By: Cliff Mason
We have been waging a crusade to get the SEC to ban these Proshares Ultra Short ETFs that give you $2 worth of selling power for just $1. Initially we opposed these ETFs because they make it possible for hedge funds to do horrific amounts of damage to entire sectors by bringing to bear tremendous amounts of selling pressure. And if someone wanted to manipulate the market and cause a panic, these ETFs are the perfect instrument for doing so.
But as Jim discussed during Tuesday's Outrage, there's another reason why these ultra-levered short ETFs must go: They don't work the way people think they do. Jim cited a piece written by Eric Oberg, a 17-year Goldman Sachs veteran who retired as a managing director, which explains how even the smart money is getting fooled when it comes to these products. Here's the link to that story: "The Perils of the Proshares Ultrashorts."
And here's the link to an earlier story written by Oberg that Jim cited on air when we first realized that these double-short ETFs don't work the way they're supposed to: "Why Short Sector ETFs Aren't So Smart."
How can it be, as Jim mention during Tuesday's outrage, that shorting the iShares FTSE/Xinhua 25 Index ETF [FXI 25.61 --- UNCH (0) ] in 2008 produced a 46.7% gain, but buying the ProShares UltraShort FTSE/Xinhua China 25 ETF [FXP 43.59 -1.45 (-3.22%) ] , an ETF that's supposed to let you short that same index with double the firepower, produced a 57% loss over the same time period? Because the UltraShort funds track daily changes and thus rebalance daily, so any kind of volatility will eat away at your returns and then turn them into losses. Buying one of these ETFs is not the same as shorting $100 worth of some basket of stocks and then levering up and shorting another $100 worth with borrowed money over any period of time longer than a day.
Motorola to cut jobs, MSFT on the verge of,
7:53pm
Motorola to cut 4,000 more jobs in 2009
8:03pm
Microsoft considering job cuts: WSJ
By John Letzing
Last update: 8:01 p.m. EST Jan. 14, 2009
SAN FRANCISCO (MarketWatch) -- Microsoft Corp. is considering cutting a significant number of jobs as early as next week, according to a media report late Wednesday. The online edition of The Wall Street Journal, citing unnamed sources, reported that plans for the job cuts are still in flux and the company may yet find other ways to cut costs. Rumors of significant job cuts at Microsoft have been circulating for weeks, as analysts say it has struggled with flagging sales of computers containing its products. Microsoft is expected to report its fiscal second-quarter financial results next week.
Nortel Files for Bankruptcy Amid Credit Squeeze (Update3)
By Bob Van Voris and Joe Schneider
Jan. 14 (Bloomberg) -- Nortel Networks Corp., North America’s biggest maker of telephone equipment, filed for bankruptcy protection in Wilmington, Delaware, amid the global credit crunch and declining sales.
Nortel, based in Toronto, had more than $1 billion in assets and debt, according to today’s Chapter 11 filing of its U.S. subsidiary. The company said that several Canadian affiliates will also seek court protection today.
“If they’re going to go, it’s better to go now,” said Richard Windsor, a global technology specialist at Nomura International Plc in London. “It would imply the company is unable to stabilize the cash flow situation.”
Nortel has lost almost $7 billion since Chief Executive Officer Mike Zafirovski took over in 2005, leaving him struggling for the funds to operate the company. Bank of New York Mellon was listed as Nortel’s largest unsecured creditor in its role as trustee on more than $3.8 billion in notes.
Sales have declined since Nortel sold its high-speed mobile-phone unit to Alcatel for $320 million in 2006. The company got rid of the division to focus on a newer wireless technology called WiMax.
As of Sept. 30, Nortel’s debt amounted to $6.3 billion, including adjustments for operating leases, pension deficits and other items. The company has $1 billion in bonds that come due in 2011. Total liabilities amounted to almost $12 billion.
100 Creditors
Nortel Networks Capital has more than 100 creditors owed $100 million to $500 Million, according to the filing.
The company paid a $35 million fine in 2007 to settle U.S. Securities and Exchange Commission claims that it defrauded investors by manipulating earnings from 2000 to 2003. The company didn’t admit or deny wrongdoing.
Nortel restated earnings going back to 1999 after probes by regulators in 2004 indicated executives incorrectly booked revenue, inflating sales figures by $3.4 billion.
Zafirovski had sought to revive Nortel’s fortunes by cleaning up the balance sheet and reducing the workforce by 18 percent since he started. Demand for Nortel’s gear, mainly based on older code division multiple access technology, has waned as customers move to faster systems.
Money markets in the U.S. seized up following the Sept. 15 failure of the securities firm Lehman Brothers Holdings Inc. Banks stopped lending as they hoarded cash, pushing the country into a deeper recession. That’s making it more difficult, and more expensive, for companies like Nortel to find new financing.
CDMA Unit
The company could sell the CDMA unit to raise money, RBC analyst Mark Sue said in a report in November. The challenge is that too many asset sales may conflict with Nortel’s debt covenants, said Sue, who cut his target on the stock price to $0.
Nortel began as Northern Electric and Manufacturing in 1895, supplying equipment for Canada’s start-up telephone system. The company was the first to produce dial equipment in the country, for a brewery in Montreal, and its switches were used in the first Trans-Canada telephone toll system in 1932, according to Nortel’s Web site.
Nortel’s U.S. stock reached a split-adjusted high of almost $900 in 2000 as the dot-com boom fueled demand for telephone equipment. Since then, the company lost out to Cisco and Juniper Networks Inc., whose products enabled phone companies to transmit phone signals over Internet lines.
Series of Lawsuits
The plunge in the shares prompted a series of lawsuits, with investors accusing Nortel of perpetuating a $3.2 billion accounting fraud that included improperly boosting sales by accelerating the booking of fiber-optic equipment contracts. Nortel fired CEO Frank Dunn and other executives as a result.
The company agreed in February 2006 to pay $575 million in cash and issue 62.9 million shares to settle the suits, and Nortel’s insurers agreed to pay $243 million. The settlements won approval Dec. 26, 2006, in New York and a month later in Canada.
Last year, Canadian federal police charged Dunn, former Chief Financial Officer Douglas Beatty and former Controller Michael Gollogly with fraud for misstating results in 2002 and 2003. They also were charged with accounting fraud by the U.S. Securities and Exchange Commission and the Ontario Securities Commission. Dunn is fighting the charges and suing for wrongful dismissal, according to his counsel, McCarthy Tetrault.
Finger length may predict financial success
By RANDOLPH E. SCHMID, AP Science Writer Randolph E. Schmid, Ap Science Writer – Mon Jan 12, 9:30 pm ET
WASHINGTON – The length of a man's ring finger may predict his success as a financial trader. Researchers at the University of Cambridge in England report that men with longer ring fingers, compared to their index fingers, tended to be more successful in the frantic high-frequency trading in the London financial district.
Indeed, the impact of biology on success was about equal to years of experience at the job, the team led by physiologist John M. Coates reports in Monday's edition of Proceedings of the National Academy of Sciences.
The same ring-to-index finger ratio has previously been associated with success in competitive sports such as soccer and basketball, the researchers noted.
The length ratio between those two fingers is determined during the development of the fetus and the relatively longer ring finger indicates greater exposure to the male hormone androgen, the researchers noted.
Previous studies have found that such exposure can lead to increased confidence, risk preferences, search persistence, heightened vigilance and quickened reaction times.
In a separate study last year, Coates and colleagues reported that the hormone that drives male aggression and sexual interest also seemed able to boost short term success at finance.
They studied male financial traders in London, taking saliva samples in the morning and evening. They found that those with higher levels of testosterone in the morning were more likely to make an unusually big profit that day. Testosterone, best known as the male sex hormone, affects aggression, confidence and risk-taking.
In the new study, the researchers measured the right hands of 44 male stock traders who were engaged in a type of trade that involved rapid decision-making and quick physical reactions.
Over 20 months those with longer ring fingers compared to their index fingers made 11 times more money than those with the shortest ring fingers. Over the same time the most experienced traders made about 9 times more than the least experienced ones.
Looking only at experienced traders, the long-ring-finger folks earned 5 times more than those with short ring fingers.
While the finger ratio, showing fetal exposure to male hormones, appears to signal likely success in high-actively trading that calls for risk-taking and quick reactions, it may not indicate people who would do well at other sorts of financial activities, the researchers said.
Some traders require additional skills on dealing with clients and sales workers.
And the advantage may even reverse for some, Coates team said, such as traders taking a more analytical and long-term approach to the markets.
One study, which looked at average finger ratios in university departments found that faculty from math, science and engineering exhibited longer index finger ratio, rather than ring finger, they noted.
Where We Are, Where We're Heading (2009)
The Market Ticker
by Karl Denninger
Let's score the 2008 edition predictions first:
US will enter a recession: Confirmed by NBER. Check.
Unemployment will rise north of 5%. Check (bigtime)
Housing will not turn in 2008. Major check.
The story in 2008 will be defaults on prime mortgages. Check.
Consumer lending practice stupidity exposed. Check.
Recreational sector (boats, etc) smashed. Check.
Government will meddle. Biggest check of all!
Buffett will win on munis. Miss - a clean miss.
Equity prices will at least touch 1220, target of 1070, no surprise on a three-digit handle for the SPX. Major check.
Return of capital is the dominant theme. Check; 0% IRX anyone?
No "hyperinflation". Check.
Debt to be paid down and/or defaulted. Half a check. The hiding continues, and so far, there's no indication that the end of that rope has been reached.
CRE will collapse. GGP anyone? Check.
Business CapEx will go to hell. Check.
Dollar will strengthen. Check.
Market callers coming to the public "hat in hand". Nope; clean miss. Where's Cramer committing Seppuku on national TV? Oh well; hubris knows no boundaries.
16 predictions, two clean misses and one half-miss, the rest either panned out or were proved tremendously conservative.
That's not bad. Anyone else got a public scorecard? Cramer? Kudlow? How about Dickey Bove? "Generational buy eh? Hmmm....
Let's recap where we are today:
Debt has risen at a faster rate than GDP for the last seven years. This has led to a falsely-stated increase in GDP, in that when debt rises faster than GDP (on a percentage of GDP basis) what you're doing is financing expansion through debt that is not being paid down through production. Due to the nature of interest, that being the compound nature of it, this constitutes a pseudo-Ponzi Scheme that must fail. It now is failing, yet The Media continues to report falsehoods on exactly what is going on with households (and for that matter, businesses as well.)
The Federal Reserve has continued to pump "liquidity" into the economy, which is their job, but they have also continued to cover up fraud and blatant thievery, which is antithetical to their role as the primary regulator of the banking system. This is what Japan did, but they had savings to cushion the blow of their idiocy. We do not - we only have debt. Note that it did not work in Japan in that they have had below-trend growth for more than 10 years and now are facing a second, disastrous leg downward. Why anyone thinks it will work here with a higher debt-to-GDP ratio defies logic - but this is the altar being prayed at.
As The Federal Reserve and Treasury actions have proved inadequate they have continued to do the same thing but with ever-larger amounts of money that doesn't exist, committing to borrow ever-larger sums. This simply accelerates the first problem.
Neither Treasury or The Fed has a damn clue as to what they're doing. The SEC's Chris Cox and various members of Congress have confirmed this repeatedly, stating clearly that both Bernanke and Paulson have come to them with demands for immediate action backed by outrageous claims of immediate collapse of the entire financial system, martial law or both if they do not acquiesce to their demands, even though less than a month prior (and for the previous year!) these same people were claiming that our economic issues were contained. The only possible explanation for this behavior is that these two men were and are incompetent, insane, panicked and unable to think clearly, concerned that their complicity in this mess is about to be exposed (and it will end very badly for them) or all of the above.
Many of the actions of both Treasury and The Fed are of questionable legality - at best. The worst abuses include claims of "transparency" on the TARP that have simply not been met and The Fed creating over one trillion in new debt against the taxpayer without an authorizing bill in The House - a flatly unconstitutional act that in a true Constitutional Republic would have led to the immediate de-authorization of The Federal Reserve as the nation's monetary authority. More recently Treasury has actually been kiting checks on the TARP (they have committed $10 billion more than authorized thus far); that's a criminal offense if you do it with your checking account.
All of the above have taken what was a 10% correction in GDP that was necessary in 2000 (and which was primarily centered in businesses) and moved it to a nearly-30% correction in GDP that is now necessary. If we continue down this path and actually spend all the so-called "committed" funds in 2009 as would be expected, the net contraction in GDP necessary to bring the system back into balance could reach 50%. This level of contraction would be catastrophic and could easily threaten the political viability of our government, not to mention 30% of American jobs and incomes.
President Obama has "threatened" to spend north of $1 trillion in "stimulus", but in fact the nation doesn't have that $1 trillion. You cannot go further into debt to avoid the consequence that arises from excessive debt in the first place! If President Obama does not realize this fact and change course before he (and Congress) spend this money the odds of that 50% contraction go up precipitously; the $1 trillion expenditure alone will "back load" yet another 5% onto the GDP contraction that must come. This is an act of pure lunacy and yet it appears to be precisely what our government intends to do.
The cockroaches have scurried as their cover is withdrawn (Buffett's "swimming naked" analogy) and this has continued apace all year, with the latest being Madoff. We've developed a quite-impressive list of ignored warnings going back 20 years; subprime, banking "regulation", securities dealers running ponzi schemes and Treasury Secretaries lobbying hard (before becoming Treasury Secretary) for leverage limit removals that prove to be the trigger for the crisis.
Madoff is not what it appears to be. At best Madoff is a 20+ year scam that occurred with not only the intentional blindness of our government but its explicit assistance and cooperation. It is simply not possible for one man to run a Ponzi Scheme of this size, sending out statements every month to hundreds if not thousands of clients and employing a group of people, moving this amount of money around, and have the entire thing be a scam without the cooperation of literally hundreds of accomplices including accomplices inside regulatory agencies and the government itself, along with regulated entities including the banks that lost money. You cannot place that sort of capital as a bank or other regulated entity on nothing more than "trust" - no matter who its being placed with. There is much, much more to this scandal and you can bet the people involved will do their level-best damndest to keep the truth from coming out. Never mind the fact that explicit warnings were transmitted to the SEC.
Job loss has risen and shows no sign of topping. Don't expect it to any time soon. Be aware that unemployment peaks after recovery is already well underway. This makes unemployment a good indicator of misery but a horrible one for where we are in the economic cycle; as such looking for this to "bottom" is a terrible idea if you're an investor.
The number of "bottom callers" have increased dramatically. Don't believe it. The S&P 500's forward earnings for next year is still estimated around $70 (!); that's lunacy. The banking model for earnings is permanently broken and they will return (after washing out) to the "Grandfather's banking" sort of earnings - slow and steady with growth limited to that of GDP. IMHO the S&P 500 will be lucky to post $50 in earnings for 2009. Bear markets frequently bottom with a single digit P/E multiple, which puts the SPX at or under 500 before this is over. We are still 40% overvalued by this metric!
The 20/50W (and 13/34 EMA) timing signals are not only on a SELL from early 2008, they are still getting more divergent toward the sell side. I will simply observe that those who try to be heros in the market often wind up with zeros in their account. Until these timing signals flip the primary trend in the market is down. This doesn't mean you can't make plenty of money trading bear-market rallies, but it does mean that if you're buying here "for the long haul" you are attempting to front-run a trend change that would be years away and another 50% - or more - below us in terms of price. This market is not a falling knife - it is a falling chainsaw.
In short, essentially nothing positive has been done and a lot of damage has been inflicted on everyone in America out of hubris, fraud and avarice.
We now are "discovering" what I have written about for more than a year first-hand - the so-called "growth" over the last seven years has all been a fraud, instead being nothing more than additional debt. Ponzi-finance has taken over every area of our economy, from government to private business, and has run to the natural limit of "the greater sucker", now leaving all of the people beguiled and bedeviled exposed as the naked-swimmers that they are.
There has been zero push for accountability and truth throughout the system. Not among our so-called "leaders", not among the bankers, not among the political or economic elite. All are focused on trying to keep the impossible going.
The truth of all of this is trivially easy for you to demonstrate to yourself. Just ask the following questions:
If you have $100,000 and borrow another $100,000, have you doubled your net worth, or have you actually harmed your economic position, as you will not only have to pay back the $100,000 you borrowed but also interest on that money?
If you do not own a home, do you want that house to be priced high or low?
If you want to buy a car, do you want the price on the car to be $20,000 or $40,000?
If you're buying gasoline do you want it to cost $2 or $5 a gallon?
Are you better off with zero credit card debt, $2,000 in credit card debt or $20,000 in credit card debt?
How did we actually nominate a man for President of the United States (he lost by the way) who declared publicly that he had one half million dollars in credit card debt and couldn't tell a reporter how many houses he owned?
How did we have a bill, the EESA/TARP that obligated citizens to pay $700 billion in taxes that we do not have (that is, to put us all in debt by another $700 billion), that was opposed from 100:1 to 300:1 in calls, faxes and letters to Congress, was passed over those objections with an election less than a month away, and we the people then returned 90% of those who voted "Yes" and stood for re-election to office?
There will be no improvement in the economic condition of our nation until each and every one of us ask ourselves these questions, honestly contemplate our answers, and then put our outrage (or desire) for those economic conditions into firm, no-nonsense peaceful action to force our elected and unelected government officials to act as we direct.
Please realize that if just one third of one percent of the population of America was to get upset enough with the blatant fraud, theft, Racketeering and Ponzi Finance that has literally decimated the economic structure of our nation, American households and our future (not to mention our children) and were to show up in Washington DC in peaceful protest, occupying The Mall, Constitution Avenue and surrounding areas and refused to leave until every one of these charlatans resigned in disgrace or committed seppuku on national TV the protesters would number one million.
Such a mass of people would be literally impossible to refuse to answer to. That we have not yet seen it simply means that the population of this nation either doesn't care that it is being systematically looted, is too full of Prozac to pay attention to the racketeering and theft or is simply not paying attention. (My vote, by the way, goes to the latter - at least for now.)
Further, if we the people were to organize as few as one hundred individuals in each major city we could effectively slow commerce to the point that it would break down entirely, all through peaceful means.
How? Envision your local freeway; you, and three of your friends (four lanes each way, four drivers) line up parallel and then slow to a crawl (if you're in "rush hour" traffic) or to 20mph if not. Traffic would instantaneously snarl behind you and remain that way for hours. Your risk? A traffic ticket. A few hundred dedicated people in each major city could very effectively demand that real reform take place and that all the fraudsters go to jail, refusing to stop their daily protest until it was done. Again - a tiny fraction of one percent of the population of this nation could, through entirely-peaceful actions in protest, force a stop to this nonsense.
It hasn't happened. Why not? Are there not a few hundred unemployed as a consequence of this fraud in every major city across America? Are we really all so neutered as Americans that we will refuse to peacefully protest in an effective manner?
You want to know why the fraudsters - including everyone screaming to be bailed out of their ill-conceived schemes - are winning?
It is because Americans refuse to get off their ass, even though very effective and fully-peaceful means of demonstrating and demanding change - Constitutionally Protected means of expression that would have vast and immediate effect - exist.
Simply put, we are consenting as individuals and a nation to the economic rape being served upon us by the scams and schemes of the few.
Now let's look at first principles when it comes to economics. All of these are not desires, wishes or dreams - they are facts:
Debt when used to "pull forward" future production into current spending can be useful (for example, the farmer who borrows to buy seed or the producer of goods who borrows to buy raw materials that then are made into finished goods.) Debt taken to finance consumption has zero positive long-term impact on the economy. When debt is taken to pay existing debt it has the potential to result in catastrophic economic collapse. The latter is what we have been doing for the last 30 years.
You cannot solve an addiction problem with more of whatever the addict is hooked on, whether it be booze, crack, meth - or debt.
Its not credit, its debt. Stop listening to the BS handed out on CNBC and in the paper. When someone you talk to says "credit" stop them right there and correct them.
Our monetary system is debt based. The more "liquidity" they pump (and even the more money they "print") the more debt is taken on. Again - have you ever seen an addict cured by giving them more of their favored drug? Is there any possibility that this "medicine" can actually work? Simply put: NO.
Debt is inherently deflationary. The inflationary impact of additional credit creation is temporary; in the longer run debt always has a deflationary impact. This is obvious and inescapable if you use your head; since debt must be repaid with interest, it therefore must deflate (decrease) the monetary base since interest is a non-productive "charge" against income and (thus) earnings. This, by the way, is the fatal flaw in Bernanke's Doctoral Thesis; by refusing to recognize that all modern monetary systems (including ours) are debt-based he also fails to recognize that there are limits to being able to "print" your way out of a deflation since what you are printing is in fact debt and eventually you reach an "inflection point" where the spiral tightens - that is, the more "printing" you do the worse the problem gets!
If debt as a percentage of GDP is increasing then you are paying off debt with more debt and falsely stating GDP. This is obvious to any objective observer; a debt taken to buy a car shows up in "GDP" as the car must be produced but in fact the actual GDP impact of that transaction (over time) is negative as interest must be paid on the debt and the principal must be paid down. In the converse if debt-to-GDP is shrinking then GDP is understated. The true GDP number is only presented when the debt-to-GDP percentage is stable. This is true for all debt-based monetary systems and cannot be changed by waving around magic Federal Reserve wands.
We have been falsely claiming "growth" that did not actually occur for more than 20 years; this is why your wages have been stagnant while everything you need to buy has gone up in price and for most Americans their standard of living has contracted.
The above will not change until the Debt-To-GDP ratio begins to drop.
That cannot happen until The Government stops supporting the bankrupt with more and more bailouts and "stimulus" and instead forces those who can pay down their debt to do so along with forcing those who can't (the broke) into bankruptcy court where their debt is discharged.
The economic pain inherent in such a process cannot be avoided, it can only be delayed and with each delay the total damage that must be absorbed to restore balance to the economy grows.
We keep hearing so-called "pundits" talk about how "we must spend like mad or we will have a Depression." Folks, that die was cast in 2001 when the decision to avoid a recession by pulling forward demand through excessive debt. It is no longer possible to avoid the outcome, we can only choose when the outcome occurs, and the longer we wait to do it the worse it will be as a direct consequence of the fact that in all modern monetary systems money issued by the government is in fact debt and the problem is that we have too much debt already!
FDR has been widely hailed as a hero. He was no such thing. FDR's policies in fact caused a second wave of depression after the original downdraft that originated in 1929. This is not commonly reported but it is in fact true - there was a second, nearly 20% contraction in GDP that occurred as a direct consequence of FDR's policies. Repeating what FDR did to any material degree will not help, and any apparent "relief" will be false.
In short, as pointed out in The Ticker of the 20th - We are all Madoff in one form or another.
Ok, so with that cheery backdrop, here you go with my predictions for 2009.... and I will prefix this by saying this is a list I hope proves to be entirely incorrect. Perhaps there really is a Unicorn that craps skittles even though I've yet to find it - this is one round of predictions I'm willing to take a zero score on come December 09.
The economy will not recover in 2009. Job loss will continue through the year and unemployment will reach 8% in the "headline" statistic by the end of the year. U-6 (broad unemployment, or the closest to "real" unemployment without government "cooking") will top 15%. All the "talking heads" are predicting a turnaround in the second half of 2009. They will be wrong. Look at their records for 2008 - all of them were predicting closes at or above 1500 for the S&P 500. Why does CNBC continue to put people on the air who, if you listened to them, cost you 40% or more of your money?
Deflation, not inflation, will become evident well beyond housing. Other capital goods beyond housing will see real price declines for the first time since the 1930s. Debt is inherently deflationary; the "hyperinflationists" will once again be shown to be wrong (how many years running will it be now?)
Housing prices will continue to decline. I believe we're about halfway done with the price correction. Those who think we will turn this in 2009 are wrong - unless we get an all-on collapse in prices in early 2009, which I do not believe will occur. I've heard several claims we will have positive year-over-year home price changes in 2009. I'll take the other side of that bet.
The Fed's attempt to "pump liquidity" will be shown to be an abject failure. We will see either a Treasury Market selloff or worse, severe instability in the dollar at some point in 2009.
GDP will post a 12-month negative number and there is a decent shot that we will actually see an official depression print before the end of 2009, defined as a 10% decline peak-to-trough.
The Stock Market has not bottomed although you may think it has for a few months. The annual range will be quite extreme; I would not be surprised at all to see 1,000 touched on the SPX in the first part of the year. I believe the SPX will at least touch 500 in the next 12-24 months and the current bottom will not hold. It is possible that we could see a crash to SPX 300 and DOW 3,000 some time this year, probably after the spring (when the "Obama Halo" wears off - if it isn't blown off by economic events first.) Yes, this means I am predicting a fifty percent swing in the SPX in 2009. Lots of money to be made as a trader if you're quick and good, but an absolute minefield if you're a long-term investor.
Precious metals will not be a safe haven. The callers for $1600 and above on gold will be wrong, unless there is a major military conflict. I do not rate that probability as particularly high, but it is an event (along with a major terrorism incident - nuclear or biochemical - that would cause a rocket shot in Gold prices), so I am hedging that call. The risk of this sort of "response" to the economic crisis is, however, real, and will rise significantly going into 2010 and beyond. We'll revisit this one (a major war) next year.
The Dollar will not collapse. This is not because we're in great shape or will truly recover, it is because the rest of the world is in worse shape than we are. Last year pundits were all calling for the dollar to collapse to 40 - it didn't happen. Now they're calling the dollar's strength a "Bear market rally." Nonsense; the simple truth is that while we're in bad shape the rest of the world is literally on the precipice of a full-on collapse. European banks are more-levered and less-transparent than our banks as just one example.
The pound or euro - and perhaps both - will likely be where the FX dislocation initiates if it occurs. I see the potential for the pound and euro to both reach par with the dollar, although I'm not going to go that far out on the tree limb and predict it - yet. Needless to say that would rocket the Dollar Index but it won't be our strength that does it - it will be their weakness.
The US Consumer will go from a negative savings rate to a seriously-positive one. I am predicting 4% in 2009 but it could go as high as 10%. The math on this is simple - the "consumerist legion of more" has run its course and all that's left is debt. It hurts and bad; expecting the American Consumer to cut off his other arm is just plain dumb. By the way this is a good thing in the longer term for America once the excess debt is forced out and defaulted through the system.
Commercial Real Estate will effectively collapse and most commercial Real Estate REITs will be either insolvent or limping on life support. There will be calls for bailouts (which may be attempted; the calls are already starting to be heard) but it won't matter - a failed business is a failed business, bailout or no, and overcapacity must go away before sustainable business conditions can return.
Along with the above, expect 10% of all retail stores to close, and that number could go as high as 20%. That's not going to be fun; there will be hundreds of malls that wind up literally shuttered across America. Stay away from most retailers and property groups as investments. Firms like SPG and VNO are levitating on the strength of their dividends (7-10% yields at present); I believe this is a sucker play; if retailer defaults force dividend cuts (and I believe they will) the commercial REITs will go straight into the toilet.
Several states will get in serious financial trouble and outright default of one or more is possible in 2009. California leads this parade. But even if there is a default on a state basis, the effect will be highly localized, as county and municipal governments vary in their wisdom and budget process. The real pain comes in state-wide social and educational programs. Be very careful if you are in municipal bonds or thinking of getting back into them (I recommended they be dumped in 2007 - look at what has happened to the closed-end funds in 08! Aieeee!) as the default risk is VERY REAL. If you're buying individual issues and do the work to determine not only the risk of default but also the likely recovery if they do default there are some good deals out there - but only if you're doing the work. "Trust me" (as in buying funds, whether mutual funds or closed-end stuff) is very dangerous.
Mortgages are not done. The story last year was "Subprime." This year's will be "ALT-A", "Option ARMs" and so-called "Prime". The Fed and Treasury know this, which is why they are playing games with "agency" debt in a desperate attempt to clear this market before the ticking nuclear devices go off. The amount of debt involved in these "bad deals" is vastly higher than that in the "subprime" space and if they fail to contain it (a near certainty) Round #2 of severe bank instability gets served up on us in the second half of 2009.
If you want to refinance a mortgage you may get one brief shot at it with long rates around 4%. You're nuts to buy outright unless you intend to die in the home, but if you have a solid reason to be obtaining a mortgage or wish to refinance you will probably get the opportunity.
This assumes the "buydown game" gets going before Treasuries dislocate; if you get the opportunity take it as it is likely to be fleeting. The few places in this country where homes wind up selling for 2.5x incomes (on average) and you have an opportunity to finance at 4% and change will be decent buying opportunities - if you're sure you can cash flow the note (e.g. your job and/or income stream is not in any danger of collapsing.)
Those who have said that the corporate bond market is being "unreasonable" in its expectation for defaults will start to look like the jackasses they are. Actual default rates (not projections) on non-investment-grade debt will skyrocket starting in 2009 and there will be no sign of it turning around this year. If you're playing in this area of the market thinking that "the worst is behind us", I hope you like walking around bald as the haircuts handed out to folks like you will be especially severe and delivered with a straight razor.
The calls for "more lending" to consumers and businesses will go exactly nowhere. The problem isn't credit availability - there's plenty of money available to lend if you are credit-worthy. Those who are being turned down now simply aren't credit-worthy when one looks at what they want to do with the money and what they're backing their repayment capacity with. The more "credit stimulus" is thrown into the economy (and there will be more) the worse the downturn will get.
General Motors and Chrysler will fail to meet their targets and it will be labor that sinks the deal. At least one and probably both will wind up in some form of bankruptcy in 2009. The UAW is insane; Gettlefinger needs to be strung up by his genitals and pelted with rotten tomatoes by his union "brothers", and if they had a lick of sense they'd have already done it. They obviously don't. I give this mess six months tops, with Ford as the only possible survivor. The recent GMAC games show exactly how desperate they are; 0% 5 year loans to people with 620 FICO scores are flat-out insane and the default rates on those loans are going to wind up in economics textbooks five years hence.
Protectionism and currency manipulation will rear their ugly heads in 2009, originating not here but in Asia as their economies go straight into the toilet. China and Japan are at severe risk here.
Commodities will appear to be headed for a new bull market but this will turn out to be a false hope as demand continues to collapse. Attempts to manage oil output to prop up the price will fail. Several oil-producing nations will find themselves in serious economic trouble, with Russia being in the lead but by no means alone.
Sovereign debt defaults will number at least three with many other nations on "watch" for same; we had one last year (Iceland.) Noise about a US "AAA" downgrade will continue. Highest on the list for probables are Russia, which needs oil at roughly double its current price - and stable - to be financially viable. Not going to happen in the near term.
China will have its first large-scale rumbling of civil unrest as a consequence of collapsing export demand and thus employment. They'll manage to tamp it down - this year. Don't take a bet on that holding together longer-term. Those who think China will be "ok" are deluded; they have a horrifying overcapacity problem (debt-financed, of course) and there is no way for them to get out of it. They are truly going to "take it in both holes" down the road, but the worst of it won't be in 2009 - that is still a year or two in the future.
Foreign uptake of Treasuries will be choked off - by necessity. It won't be because they want to screw the US (although they should have a long time ago, given our profligate and unsustainable habits), it will be because they will be forced to redirect their resources inward as their own economies collapse.
"The City" (London to be precise, Britain generally) will be recognized as getting it "worse than we are" (in America.) This will be the first of many validations of my thesis "we're screwed, they're gang-raped."
Things will get "revolting" in a number of nations. Not here in America. Yet. If we're lucky the American Sheep will wake up and stage some of that peaceful protest stuff I outlined above. If we're not so fortunate 2010 could be really bad.
In terms of recommendations its simple - rallies are to be sold, cash is to be raised and prudence is to be practiced in your own personal financial affairs. Don't get creative in all things finance, get stingy and prudent. Your personal financial survival could well depend on it.
I got out of GM today after this news today,
out @ 4.07 ........
IMO they would be much better off filing chapter 11, I know it sucks for employee's, suppliers etc. but it may be the best option for survival.
Never thought I would see the day that any of the big 3 would be at the point of extinction!!!
My dad must be sitting up in his grave....a life long Chrysler mechanic going back to before WWII and SSI
"General Motors Corp. Chief Executive Rick Wagoner said Monday the auto maker is still working to avoid a Chapter 11 filing but that it remains "prudent for us to be prepared for all options.""
And
"The president of General Motors says the automaker may have to tap an additional $4.6 billion in taxpayer funding, under a plan submitted to the U.S. government last month."
Patty, very nice........I had to leave so I was not going to chance holding.