Freedom Wins! Housing Loses!

Congratulations Egypt!

It's amazing what you can accomplish if you want it bad enough.  Hopefully, all governments of the world will take notice of this amazing event.

The message?:  If you abuse "We The People" you will be taken down.  If a brutal dictator like Mubarak can go then anyone can! 

The market looks like crap today BTW.  The fall of Mubarak should have sparked quite a rally.  We have seen nothing of the sort.

On the news front the PIIGS are back:

"LONDON (MarketWatch) — Proving that the euro zone’s sovereign-debt crisis is yet to be vanquished, yields on Portuguese government bonds continued to climb to levels viewed as unsustainable on Thursday, prompting the European Central Bank to intervene.


Yields on the 10-year bonds soared to a euro-era high of more than 7.6% at one point Thursday morning, according to strategists. The European Central Bank later intervened to buy Portuguese bonds, several analysts said, after staying out of the markets amid relative calm in recent weeks."

The Bottom Line

The PIIGS issues and their massive losses have been hidden versus being solved.  The same thing is happening over here.  Keep "printing and praying" guys.  Everything is just fine...NOT!

Fannie/Freddie

Geithner came out and discussed a new plan that will wind down Fannie and Freddie.  It's too bad the plan is about 3 years late and lacked detail.

It is also way too drawn out.  They say it will take 5-7 years to wind these two worthless entities down.  This pretty much guarantees that the housing crisis will be stretched out for a decade as the government slowly gets out of the mortgage market.

The reality here is when they do get out than no one will be doing loans.  Think about it:   What bank is going to take on the risk of doing a mortgage without a guarantee from the government?

I wouldn't be lending if I was a bank.  Who in the hell wants to lend people money for loans on houses that are still grossly over priced?  On top of that who is left to qualify to buy with unenployment nearing 20%?

Also, note that the new requirements will demand that you have 10% down when the government leaves the market.  Good luck with that one! How many borrowers have that?  You probably just took out 70% of the buying pool with the 10% rule.

Don't get me wrong, it's a good idea.  In fact, it should be 20% down like it was in the old days.  This is called sound lending!

All I can say is good luck to the housing market as the government slowly backs out.  You think things are bad now?  Wait until the only lenders left are a bunch of insolvent banks that will only do prime loans with 10-20% down.

Housing is DOOMED with a capital D.

Keep Printing Ben

You are right!..There is NO inflation.  NONE! ZERO! ZILCH! NADA!:

"PORTLAND, Ore. (AP) -- Kraft Foods Inc., like many of its peers, is feeling some pricing pressure.

The company reported Thursday that price increases it made to cope with higher ingredient costs are not going to be enough to sustain its profitability and it plans further hikes this year.

As one of the world's largest food companies, Kraft is feeling the pinch from higher costs for wheat, corn, sugar and other commodities.

The company already raised prices on most of its products in Europe and more than half in North America. But it said its input costs rose nearly $500 million during the fourth quarter and its profit margins suffered accordingly."

Quick Take:

Somebody please wake me up when all of this stupidity ends.  I just can't take it anymore!

This is all going to end in tears.  Prices will keep rising until demand falls off a cliff and earnings collapse.  We are seeing signs of it already in earnings from Cisco and now Kraft.

This whole scenario reminds me of May of 2008 all over again.   

It's important to note that our inflation problem is now officially worse than last time.  As you can see below,  most commodity prices have now passed the all time highs of 2008.  Many don't realize this because they are too focused on oil which is rising but remains far below it's 2008 peak:
"Global food prices hit a fresh record high last month, surpassing the levels seen during the 2007-08 food crisis, the United Nations said on Thursday.

The Rome-based Food and Agriculture Organisation said its food price index, a benchmark basket tracking the wholesale cost of 55 commodities such as wheat, corn, rice, vegetable oils, dairy products, sugar and meats, jumped to 231 points, up 3.4 per cent from December. The FAO started tracking the basket in 1990."

The Bottom Line


Our inflation problem has gotten beyond ridiculous, and it is time for the whole house of cards to come tumbling down once again. 

The problem this go around is there is no money for large bailouts.  Congress pissed it all away on saving the banking system.  In fact, it's still pissing it away on these tards as we speak. 

There was a lot of market violence today despite the flat close.  APPL saw a violent sell off midday before rallying back.   Bond yields spiked back up.  All is not well.

I was expecting to see some serious violence this spring as the end of QE nears.  However, as things develop, I am starting to get concerned that we might not make it through the winter without seeing something nasty marketwise.

I didn't expect these earnings issues so soon.  If this trend continues then the market has some serious problems to deal with right NOW.

The recovery is starting to sputter thanks to inflation just like it did in the fall of 2008.    Stocks are priced at ridiculously elevated levels.  Many stocks have passed their 2007 highs.

Earnings must come in PERFECT in order to hold these levels, and companies are failing to do so thanks to the rising input costs that Ben fails to see.

Meanwhile, 20% of the nation remains unemployed and their homes continue losing value on a monthly basis.  This is hardly the proper foundation that economic recoveries are built on.

Reality is starting to set in folks and it's not going to be pretty for anyone involved.

"Juggle Mode"

Have you ever gone to the circus and watched a juggler?

It's always so cool watching all of those balls fly so effortlessly through the air.

If you are a big fan of jugglers then I have some great news for you!!!  You no longer have to pay for a ticket to the circus in order to watch it.  In fact, you no longer even need to leave your house.

These days all you have to do is turn on CNBC and you can see all the juggling you want for FREE. 

Some of today's best juggling was seen in the bond market:

"The government's auction of 10-year notes drew greater interest than expected from investors, including foreign buyers. Indirect bidders, a rough proxy for foreign funds and banks, took 71 percent of the notes, the largest share since May 2003."

At the same time bonds were soaring the currency dropped sharply:

Quick Take:

This makes no sense of course.  Why would a dollar denominated asset like bonds soar on a day the dollar sells off hard? 

Answer:  Because the world's juggling central bankers are printing money like madmen and throwing it wherever they have to in order to keep all of the "balls" in the air. 

Today's  gaping hole was in bonds so that's where the money went.

Juggling Creates Distortions and Inflation:

There are unintended consequences when you decide to pursue reckless monetary policies.  The banks of the world have decided to pursue this reckless path and theyare desperately doing everything in their power in order to keep this pig of a market propped up.

Remember folks, this is a globally coordinated central banking system at this point.  If one domino falls they all do so they are all in this together and for now they are loaded with boatloads of cheap money.

This will likely allow keep the game going in the near term.  The problem is it's creating a boatload of inflation.

Just look at Cisco after hours:

"Cisco Systems reported financial results Wednesday that topped expectations, but investors punished shares after hours as weaker margins added to concerns about increasing competition.

Cisco, which sells computer networking equipment to businesses, earned 37 cents a share excluding special items in its fiscal second quarter, against 40 cents a share last year. The company's net profit for the quarter ending Jan. 29 fell to $1.5 billion from $1.9 billion.

The company garnered sales of $10.4 billion in the quarter. This time last year, Cisco reported sales of $9.815 billion."

Take Continued:

OK, so let me get this straight:  Sales are up from $9.81 billion to $10.4 billion, but profits are down about 25% from $1.5 billion from $1.9 billion from the same time a year ago????

HUH????...Bbbuuttt...Ben Bernanke said there was no inflation!

I can't think of another reason why Cisco's profits would get creamed like they did.  Another possible cause for this drop is if Cisco had to drop prices a bit in order to hold share.  I don't buy that excuse for one second.  Their "profit pain" came from a weakening dollar and higher costs.

Either way, this is not good news for Cisco or the stock market.

The Housing Collapse Rolls On!

It appears that the only thing that doesn't rise in price in this market are houses:

"The number of borrowers who owe more on their mortgages than their homes are worth took a huge leap in the fourth quarter of 2010. A full 27 percent of borrowers are now “underwater” on their mortgages, up from 23 percent in the previous quarter, according to a new report from Zillow. Foreclosure moratoriums and falling home prices are to blame."

Take Continued:

I have said for a long time now.  Housing is deader than dead and is never coming back in our lifetimes. 

Things are only going to get worse as more and more people end up underwater in their homes because they will not have the ability to sell them.  These borrowers will then eventually be forced to default after running out of options.  This is going to then put even more pressure on already depressed housing prices as inventories continue to rise.

Let me also add that I am starting to see some blue skies:

Some areas like Miami, LasVegas, and some areas of California are now starting to show signs of stabilization after seeing 70% price declines.   This makes sense in these areas at this point.  About 25-50% of these buyers are paying cash. 

We could very well be nearing a bottom in these devastated areas.  However,  I don't think you will see any appreciation in these properties for years, and many of these buyers will likely see losses over the next several years before things turn around.  Nonetheless, if you are paying cash and can rent them out, do you really care?

Food for thought. 

Let me repeat....Don't misconstrue what I am saying here:  Most housing markets are going to see devastating housing declines and are nowhere near the bottom.  A 50-70% drop in prices will be the norm in the majority of housing markets by the time this is all said and done.  We are only down about 30% nationally at this point so there is a ways to go.

The Bottom Line:

That juggler at the circus is really cool until he drops a ball.  We all know what happens after that. 

If you forgot then go buy some tennis balls, start juggling, and watch what happens after you drop the first one.  

The market's miraculous juggling show is about to drop it's first ball, and IMO, it will be triggered by June's "QE Crisis".

Ignore the Bond Market at your own Risk!

Sorry Folks,  I am a little bit under the weather.  The cold is getting to me!

A few quick points.  I am sure you know what I'll start with today...The 10 year bond of course!!:

Quick Take:

The spike occurred following today's 3 year bond auction which was pretty ugly.  The primary dealers ended up having to eat about 62% of it which is the highest percentage seen since 2007.

Also:

Something that should be considered even more alarming is yields on the short end of the curve also spiked.  Folks, if we lose the short end of the curve it's over.  I'll leave that one for a later post because I feel like crap.

Another interesting thing to note today was the move in gold:

Quick Take #2:

This makes no sense people.  Gold had two powerful headwinds that should have sent it lower today:  Higher interest rates in China as well as rising rates here in the bond market. 

Why the sudden rush into the yellow stuff at the same time real rates are rising?  Loss of confidence in our worthless dollar perhaps?   Enquiring minds would like to know.

The Bottom Line

The market continues it's rise despite signals out of the bond market that we are about to enter some rough water.

Their fear of course is inflation and a falling dollar.  For the shorter term all of this "funny money" liquidity is helping stock prices. 

However, over the longer term it will unfortunately bring us horrible inflation which is why you are seeing a mass exodus from the bond market.

I stick with my start of the year forecast.  The trend is likely higher until the March to April time which is when the end of QE2 approaches.

The Fed's Fisher is already out today vowing to vote against any extension of QE.  The posturing has already started and we are barely into February.  Imagine how heated this debate will become a few months from now!

Enjoy the ride for now because the Fed has your "back".  The bond market is about to change all of this so get prepared.

Remember, our already unaffordable housing market dies if the 10 year rises a point from here.  Let's face it, it's already on life support as it is.  Housing prices continue to fall despite the easiest monetary policy ever seen by mankind.

Stocks can only deny this reality for so long.   Enter at your own risk.


Edit:

An interesting take here from Newsy.com on the potential repercussions of the NASDAQ hacking scandal that was reported over the weekend.  Take a peek:

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