Thursday, July 30, 2009

Where is that Money Tree Planted?

Hello Folks

Well, it was another bizarro trading day on Wall St. The DOW surged 160 points in the morning before giving up half its gains by the close. Obama came out after hours and said that the GDP will show negative growth in the second quarter.

Gee? Do you think maybe that info was leaked to Goldman an hour or two before the close as stocks pulled back late in the day?

Treasury Auction

You gotta hand it to the boys in the bond market. They pulled it off and got the auction sold today. The BTC was a strong 2.62:

Here is a nice summary of the treasury sales this week:

Quick Take:

The one thing that sticks out to me here is how erratic these auctions were in terms of who bought them. One day its the primary dealers. The next day its the indirect bidders. This looks like one giant juggling act IMO. The problem is we all know what happens when a juggler drops a ball.

You gotta wonder folks, where is all the money coming from that allows the market to prop up both equities and record bond auctions? We all know it doesn't grow on trees.

I can only come to one conclusion(Please don't take this in a derogatory way):

Quick Take:

I am very anxious to see what the money supply numbers look like as these auctions continue to sell. I can't help but think that the government is printing boatloads of money in order to make all of this work.

If this is the case, inflation is right around the corner. Notice how the dollar dropped hard today as the auction got done. I think that the more successful auctions that you see, the more pressure you will see on the dollar.

In fact, CNBC reported today that someone bought 100,000 contracts in the options market today betting that oil will DOUBLE from here. In my eyes that's an inflation/short the dollar play. I am wondering if it might possibly even be a dollar devaluation play.

Things are getting very interesting and continue to make less and less sense. I smell a big fat rat.

Watch GDP tomorrow morning. This could be a market mover.

One last thing today. Here is a great video on the HFT games we have seen recently including something very strange that happened this morning. Take a look. Karl did some great work here:


Anonymous said...

Jeff - im curious, given that the name of your blog is "the housing time bomb" why is it you dont even touch on housing anymore?

CT-Hilltopper said...

2.62 is MUCH more respectable than 1.9.

Helicopter Ben must have had the presses flying all night long to have been able to print all that money.

Or maybe he just left it to the B-52's: (Legal Tender)

We're in the basement, learning to print
All of it's hot!
10-20-30 million ready to be spent
We're stackin' 'em against the wall
Those gangster presidents

Livin' simple and trying to get by
But honey, prices have shot through the sky
So I fixed up the basement with
What I was a-workin' with
Stocked it full of jelly jars
And heavy equipment
We're in the basement...
10-20-30 million dollars
Ready to be spent

Walk into the bank, try to pass that trash
Teller sees and says "Uh-huh-that's fresh as grass."
See the street pass under your feet
In time to buy the latest model get-away Jeep

Any other B-52 fans out there? I can't be the only one! LOL

Jeff said...


Good question.

I guess because its already blown up. I kinda felt like I was beating a dead horse. I had many realtors following this place at one point.

Would you like more posts regarding housing or an occasional update?

I am always open to feedback. This place has just kinda morphed into an economic blog as the housing crisis became an economic crisis.

Jeff said...


that Obama picture actually is like a video. I couldn't transfer it onto the blog though.

Its got music in the background as he is shuffling money out of his hands. Its really funny.

getyourselfconnected said...

Great piece. If you checked out the durable goods post I had up yesterday about differential data presentation you will LOVE todays screens shots I snagged from Yahoo Finance (up in a bit).

I figured the bond auction would go well, cannot go two poor ones in a row and all that. I actually had an exchange this morning on the Seeking Alpha article reprint that was pretty funny.

Glad to see you engaged, a creative outlet can be a big help in tough times.

All my best.

CT-Hilltopper said...

You know, next week, I'll be 49.

Next year, I'll be the big 50.

I'd sure like for the government, the Fed, hell, somebody, pull a big rabbit out of their hat and get us to hell out of this thing, already. Once and for all, not just a kick the can down the road for a couple of years type of thing, but just fix it and get it over with.

I'd love for there to be a US around when I turn 50.

This whole long drawn out process is just pissing me off. You just don't know how much this is pissing me off.


You aren't the only one who can rant, Jeff. ;)

CT-Hilltopper said...

BTW...I don't realistically have much hope for my prince on a white charger to fix it all. I have a strong feeling how this story is going to end, unfortunately.

I'm just amazed at how long they can keep this going.

It'll work till it doesn't.

Jeff said...



I saw that you got back on Seeking Alpha.

Congrats! Thats a real compliment to be on their so often!

I will have to check out your Yahoo stuff later tonight. I wonder what GDP looks like tomorrow?

getyourselfconnected said...

delay, deny, and ignore is the way our leaders behave now. We are without real public servants, have been for some time. To me one of the worst parts of the current "recovery" is that kicking the can down the road become viable (in their eyes) where before things were good and broke and real reform had a glimmer of a chance. Oh well, maybe another chance will come.

If interested, I have the post I was talikng about up now.

Jeff said...


My thoughts exactlty.

Its like having a band aid slowly pulled off a wound.

Just rip the thing off already! Its a hell of a lot less painful that way!

I am also afraid as to what this world looks like when it does blowup.

I am hoping for a peaceful Japan type scenario but I highly doubt that given our over the top culture over here.

getyourselfconnected said...

From the department of "no kidding" Cash for Clunkers is dead due to "backlogs" but I think fraud has plenty to do with it. Free money and fraud, now who would ever guess that would happen?


getyourselfconnected said...

Sorry, the comments seem to be loading at different times.

Thanks Jeff,
Seeking Alpha usually posts my articles, but never the Friday night ones as I include entertainment (movies, books, music, etc.) I will be at a Depeche Mode concert tomorrow so no post.

I am thinking the GDP number was leaked today and that was the cause for the runup. Maybe as high as +1.0%? Later, the word came down to cool it and the indices gave back about half. Maybe I am crazy, but I put it out there.

Jeff said...


Have fun!

I am your age so I was laughing when you said Depeche Mode. Haven't heard that name in a long time.

I am a U2/Bruce freak.

I think GDP is red tomorrow but beats consensus which is -1.5% I believe.

We'll see tomorrow. Have fun!

getyourselfconnected said...

I am a "metal head" but the wife said "I love Depeche Mode" and so we have front row. I do love "Personal jesus" and "World in my Eyes" but this is a stretch for me.

I am the same age as you and my own dad has been gone 14 years and I can commiserate with ya on the loss angle.

Jeff said...



Sorry to hear about your dad.

I am trying to make the most of it. We are headed to dinner next week. Gonna spend as much time as I can with him.

Futes are up! What a

Anonymous said...

I think an update on housing is worthy from time to time as there is some serious consideration to suggest it is bottoming.

Case Shiller was a big one for me. Everytime some realtard called bottom, I just pointed out CS and told them to buzz off.

New home sales - existing sales, massive reduction in inventory. Everything I see makes a bearish case harder and harder to make.

I just wanted to see if you saw it any differently, and your take on the news out there - plus it is very much related to the economy and a source of much of the "green shoots" these days.

Just my 2 cents.

flipdippy said...

Jeff + Anon...

The only update on housing that needs to be done on this point is a posting on which tents can store the most Alpo, or perhaps whether Alpo or Friskies will stay fresher for longer through the winter.

The only people who don't get it about housing at this point are the ones who are already stockpiling Meow Mix and living under bridges or in forests near strip malls.

Actually, let me correct myself. Jeff, you may want to do a piece on the rent vs buy decision for living in a bunker.

Jeff said...

Oh Anon

No problem. Maybe I will discuss this today if things are quiet. I see it very differently.

The shadow inventory is the huge problem here. The housing game is nothing but smoke and mirrors right now.

Housing prices have stabilized because banks aren't foreclosing on homes thus keeping inventories flat but still higher then average. If they are foreclosing they are often sitting on them and not trying to sell them.

The 1 to 3's(100k-300k price range) have stabilized be cause buyers can afford them! However, housing is far from the bottom.

Jeff said...



The bubbles that take down an economy never lead us out of them.

HOusing will never come close to what it was. Anyone that paid over 430k for a house is totally screwed.

I know of multiple people sqwuatting in homes for 2 years after sthey stopped paying their mortgage and the banks have done bothing because they don't want to take the loss!

Anitolia said...

"Jeff said...

Housing prices have stabilized because banks aren't foreclosing on homes thus keeping inventories flat but still higher then average. If they are foreclosing they are often sitting on them and not trying to sell them."

And you think this is going to change? Everyone seems to think that an eventual TSUNAMI is coming. Bullshit.

If the banks push em out too quickly, they will destroy the stability they worked so hard to create. Not only that, but thanks to the MTM rule changes, we dont have to show how screwed they are. Moreover, if they push em out all at once, they have to recognize the loss all at once, making them insolvent and subject to seizure by the FDIC. Therefore, it behooves them to spread the loss as long as it takes - to get this all done, be it one year, two years, ten years, whatever. They will continue this as long as possible til inflation digs them out of the hole. They have to - its the only way they survive.

Lets put it this way, I dont work at a bank but I work with them. The masters of the universe figured they could create a floor under this and now they have. Now that theyve done it, why will they do anything to destroy it, especially if it means destroying themselves?

Think of it this way, if it were you in the banks shoes would you do anything differently? Would you choose to be benevolent to renters if that meant you would go out of existence?

Sorry to break it to you, but it is what it is. I dont agree with the system, but I understand it. I can rail against it, but I understand where they are coming from and I for one am going to act accordingly.

CT-Hilltopper said...

Get...your wife and I should get together and talk about Dave Gahan.

Maybe not.

Do NOT get me started about Depeche Mode.

"World In My Eyes"...Dave Gahan...

Bruce Springsteen and U2 make my list too.

I have to go somewhere and cool down now.

What were we talking about? The economy? GDP???????


Jeff said...


I totally agree with everything you said. Thats exactly what the banks are attempting to do.

They have one problem though. they don't own the whole housing market. Only a portion of it.

Sellers eventually will panic as they run out of money and options. It happens every cycle.

The banks are only gong to end up puking them up for less the longer they hold onto them.

It happens every cycle. There will be many other pigmen waiting to pounce and will make a killing once these houses are dumped for pennies on the dollar.

Also, who is to say the government is going to continue and float the banks? COngress seems awfully fed up with them.

Enron attempted the same crap and everything was ok until they couldn't pay the bills.

Anitolia said...

"Jeff Said...

They have one problem though. they don't own the whole housing market. Only a portion of it.

Sellers eventually will panic as they run out of money and options. It happens every cycle."

Thats not true Jeff - take DC for example:

See how the trend is going? Were already at 2005 levels YOY, and we keep going down.

Further, if your idea was true we would have seen it last fall as the world decoupled. In fact at the time, the prevailing meme was inventory was going to explode. Yet look again what happened from Say Oct 2008 til now. Further, if they didnt panic and list back in March when the dow was at 6,500, they are not going to do it now.

Finally, this does NOT "happen every cycle" as you contend. If you look at what happened in the GD, inventory dried up as people hunkered down and waited for better times. If the cycle repeats itself we expected to see it in mobility. Sure enough the brookings institution came out and said mobility is at a multi decade low and still falling.

Incidentally, this is what "happens every cycle", and (thanks to severely restricted supply), causes an eventual recovery.

"Jeff Said...

The banks are only gong to end up puking them up for less the longer they hold onto them."

No they wont Jeff. We just went over this. So far, weve seen what happens when you restrict supply - you create stability. Thus, why will they get less if there is stability?

"Also, who is to say the government is going to continue and float the banks? COngress seems awfully fed up with them."

What do you think 2007-2008 was all about? Congress gave a big FU to the banks, and we saw what happened - thanks to MTM, inventory exploded as they needed to try to clear the books as much as possible. I mean look at the inventory in 07-08 for christs sake!

Congress saw what happened when they refuse to float the banks - they held off as long as they could, telling the banks go fix yourself - that timeperiod from Nov to March wasnt pretty - no way they are returning to that. Further, now that they are seeing results (i.e. the stability you and I both agree on), they are not going to go back to the hellish period from Nov-March.

Bottom line is this. You can make many many bearish cases for why this isnt the bottom. You made one of them with the seasonality aspect (and I agree). However, I will say this - there is no bearish case you can make that in any way involves inventory - shadow, real or otherwise.

Jeff said...

Restrict supply?


There is 20 months of inventory in homes that require an Alt A mortgage.

The only arena where supply is back to normal is the 1 to 3's(100k-300k). The reason for this is people can actually afford the house.

What you fail to acknoledge is NO ONE can afford the houses they bought during the bubble!

Why are prime mortgages defaulting at an all time high? How many will walk away once they realize they are paying on an asset thats worth half of what they paid?

Your theory makes sense if the lending was done based on sound lending practices. It wasn't. It was fraud plain and simple.

The majority of Alt-A's have faiked to reset.

No one is able to lend the money needed to stabilizre prices because the banks LENT TO THEM USING LENDING PRODUCTS THAT ARE NO LONGER AVAILABLE!

Housing prices will stabilize under 300k. Anyone owning a home over that is screwed.

You believe that this is just a quick problem that can be swept under the rug and stabilized.

Why are prices stilling dropping 18% year on year if thigns have stabilized??

Bubbles do not reflate.

Regarding the banks the government probably will keep them alive. However, they will be zombies and unable to lend at the capacity they did back in 2005.

All we have done since 2007 uis kick the can down the road. The same fundementals remain. Housing is unaffordable and people will continue to get foreclosed on because they can't afford the house.

Jeff said...


For full disclosure.

My father sold MBS and was a credit trader for over 50 years. I grew up around fixed income traders my whole life.

I continue to stay in close contact with them so trust me when I tell you I understand the scope of the problem here.

Anitolia said...

"Jeff Said...
I continue to stay in close contact with them so trust me when I tell you I understand the scope of the problem here."

Jeff - with all due respect, I think you dont. If you want to play swingin dicks, Ill be happy to point out I now spend 40% of my time working on deals to clean up the MBS mess. I once worked with Ivy Zelman - creator of the infamous credit suisse "reset chart" that all bears know and love. I think Ill take my first hand knowledge over what you hear secondhand.

In this exchange, you flit from shadow inventory, to regular inventory to Alt A. You make assertions about "happens every cycle" when thats incorrect. There is no focus to your theories. Why dont you just come out and say, Im a bear and I say its a problem - save us both the trouble of having a purported "open" discussion.

Jeff said...


No trying to play swinging dicks.

YOu talk down to me like I don't understand the problem and I don't appreciate it.

I have no idea how long you have followed me but I have made many accurate calls regarding this crisis.

You are on the opposite side of the trade so there is no point in continuing this conversation.

Good luck cleaning up this mess. I respect your opinion. I am bearish because I understand the fundementals and I am realistic.

You believe I have an agenda which I really don't. I just try and represent the facts. You abviously have an agenda because you are attempting to fix this problem. Good luck!

The fact that you feel the need to come on here and debate me tells me that you are scared about the situation you find yourself in.

I bring up other facts because I am trying to discuss the full problem. You only try and focus on "shadow inventory". that is the least of your problems.

We will see who is right a couple years from now. I will be more than happy to give you kudos if housing makes a huge comeback.

Cheers and no hard feelings.