Another round of losses hit Wall St. today as the bad news continues to pour in. The consumer sentiment number came in at 50 and was the fifth worst on record. This helped set the tone for the rest of the day. The street also reacted to another poor Case/Shiller housing report showing that home prices continued to freefall. Here is the link to the stories above.
I want to focus on some data from Bennet Sedacca. This was reported on Bloomberg. The "financial tsunami" he warns of is based on the frightening graph below showing the massive spikes in delinquenies rates on home loans:
Please click to enlarge. You may not want to click on this because this data may keep you up at night. This is a great historical perspective dating back the the late '70's in terms of delinquency rates on home loans.
As you can see we are seeing significantly higher deliquency rates versus the 1990/91 housing crisis. We are even way above what we saw in the early 80's when interest rates were in double digits! I almost fell off my chair when I looked at this!
A quote from Bennet in the article:
``Whether it is anecdotal or statistical evidence, I see inflation everywhere, and this is where the financial tsunami cometh,'' Sedacca wrote in a report published yesterday. ``A battered, over-indebted consumer, if forced to retrench, could create even more problems for the banking system as loan delinquencies would begin to rise even further. All sorts of delinquencies are rising. This is now a systemic issue.''
"Sedacca wrote that current financial-market conditions remind him of ``someone standing on a lonely beach, armed with only a small bucket, trying to stop a rare tsunami that hits the shores. It is how I feel about our markets and the tools being utilized by the Federal Reserve, the European Central Bank and other regulatory bodies. They are overmatched for what they are facing and, worse yet, they helped create the mess in the first place by being far too easy with money and debt creation.''
Final take:
Bennet is dead on here. Take away the inflation risk and these default rates would be alarming. Add inflation and they are flat out terrifying. We all know how bad inflation is getting. Dow Chemical just announced an additional 25% price increase today on top the 20% price increase they just announced a few weeks ago. Everything continues to rise in price
This whole thing is going to blow up people.
The Fed better address inflation tomorrow by at least making a hawkish statement that they will raise rates in order to quell inflation. If they continue to ignore rates then the Fed is going to blow up the whole economy.
I expect the bond market to start pushing up rates if the Fed continues to do nothing. The pressure is building and its about to blow like Mount St. Helens.
Get ready for the Financial Tsunami folks.
This is no longer "The Housing Time Bomb". I may have to rename my blog "The Economy Time Bomb"
3 comments:
As a veteran HousingTimebomb reader, I bunker myself up everyday wondering what happens next. This is another great post highlighting a *total* disaster.
I don't know when the public is going to understand that the situation is really bad. These numbers are worse than anybody's expectatations.
One word about Tsunamis: when you can see one, you're already dead.
Minton
I agree. I don't see how we stop this one. We are past the point of bailouts or contaimnet. The graph shows you this wave is growing and gaining steam!
Who knows how big the default number will be when its all said and done.
We just need to let it hit and then repair the damage. It will take years to clean this up.
Stop buy the forum and take the "Fed Watch" Poll!
http://www.frustratedhomebuyer.com/
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