I will be brief tonight.
We saw a well overdue bounce today after being extremely oversold. We have two huge numbers coming at the end of the week. Consumer data is outtomorrow followed by the big jobs number on Friday.
Video
I thought this was a great piece from Bloomberg. As you can see below, the underground cash economy in Spain is flourishing. This now represents a whopping 23% of Spain's GDP.
You have to wonder if the same thing is inevitable here as our taxes do nothing but skyrocket down the road as we struggle to pay off record deficits.
Will Americans ultimately decide to "walk away" from their taxes just like they walked away from their homes?
I sure think so.
Should this be suprising if it happens? Heck no! Why wouldn't they walk away from austerity measures? They didn't create this mess!
The banks did and then bribed Washington into passing the bill along to the taxpayer. Why in the hell should we be stuck paying off the tab?
Raise cash folks. It might become the new "Mastercard/Visa" of the future as we become creative in avoiding the severe austerity measures that are inevitable as a result of the government's Ponzi bailout/spending binge.
I now look at the European debt crisis as a preview as to what we should expect to see here down the road in the USA. The problems on both sides of the pond are the same. However, our day of reckoning has been delayed as a result of our perceived "safe haven" status.
Enjoy!
Wednesday, June 2, 2010
Tuesday, June 1, 2010
Squatting our Way to Prosperity?
Hope everyone had a safe holiday. Stocks fell sharply today despite positive US economic numbers as the headlines around the BP oil crisis and political instability in the Middle East sent investors running for cover.
I wanted to talk more about housing and the consumer tonight. I have been surprised at the resilience of consumer spending as the economy deteriorated in 2009/2010.
I had suspected a few months ago that this consumer spending rebound could be nothing more than a "squatter bounce" as borrowers stopped paying their mortgages after realizing that didn't have the ability to pay the mortgage back.
The result of such actions would put an extra few grand in most families pocket each month. The effect of such newfound wealth would then have an extremely positive effect on consumer spending since we all love to spend like drunken sailors in this country.
Turns out this may be exactly what is going on:
"A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.
“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”
Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.
The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.
More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier"
My Take:
All I can do is chuckle after reading this. Folks, this "walking away/screw the bankers" mantra is one of the unintended consequences that I have warned about on here for over 2 years.
Borrowers have simply run out of options:
- They can't afford to short sell the house because they don't have the cash to do it.
- They also finally realize that they can't sell the house for what they paid for it as they watch prices continue to free fall all around them.
- Finally, they can't continue to pay the mortgage because they could never afford the house in the first place.
So what's an insolvent home owner to do? You take the only option left which is to just simply stop paying the mortgage.
This option is becoming a much easier route for more and more borrowers as the anger against Wall St increasingly turns into a full blown raging hatred for bankers.
The sheeple are finally realizing that they have been "fleeced" by the banksters. As their anger against Wall St continues to escelate month after month, they now feel less and less guilty around making the decision to stop paying their mortgage payments.
As you can see by the numbers above, there is nothing that Wall St can do right now but sit down and take it. They have no choice. They can't take action against the squatters and foreclose on the house because they can't afford to take the losses on the all of these foreclosures.
The only option the banks have is to slowly puch them out on small pieces. This is a better option for a myriad of reasons. It allows them to slowly absorb the losses and by keeping the number of foreclosures to a minimum it helps prop up prices.
As a result, the average amount of time spent in foreclosure before being kicked out has soared to 438 days vs. only 251 days in early 2008 as seen above.
More than 650,000 homes are now 18 months deliquent on paying their mortgages. This is DOUBLE the rate from a year ago. All I can say is.. OUCH! Houston we have a problem!!!!
I expect this number to continue and soar now that the borrowers see that Wall St is forced to let them live there for free for a good 2 years or so. I mean think about it! It's their only option for the reasons I described above. They must let the squatters squat!
They risk their own solvency if they take action against all of the "deadbeats" at once. I find it ironic that the demise of Wall St could very well be triggered by the average middle to upper middle class that they have been fleecing for decades.
The early reprocussions of such a "squatting boom" has triggered a nice pop in consumer spending. I must say thought that it's a shame that these people are pissing it away on trips to Disneyland instead of saving it as we all prepare for the oncoming depression.
Perhaps many of them are pissing the money away now because the laws in many states protect creditors which gives them the right to seize any cash and assets from those who defaulted on their loans.
The Bottom Line
The "squatter syndome" is a very alarming trend that appears to have legs. Anger towards Wall St continues to mount as the economy remains in shambles. As the "debt slaves" in this country continue to lose their jobs and run out of options, it will increase the risk of them taking out their anger out on the banks by "walking away" from their debt payments.
Making matters worse is the fact that the borrowers now realize that Wall St can do nothing about it if they decide stop paying. This will only embolden others to do the same.
The "uninted consequences" of such actions could potentially be catastrophic because none of this cannot be sustained. The banks will eventually run out of cash flow if they don't foreclose on bad loans.
One point should be made very clear here: The housing market is extremely distorted right now because millions find themselves stuck in their homes.
There has been no true price discovery in real estate as a result because people cannot afford to sell at the prices they need to and the banks can't afford to foreclose.
Prices in real esxtate cannot be trusted as a result because the real correction has not been recognized.
I will talk more about our ongoing correction tomorrow. There are many risks to the downside that are putting pressure on stocks.
I wanted to talk more about housing and the consumer tonight. I have been surprised at the resilience of consumer spending as the economy deteriorated in 2009/2010.
I had suspected a few months ago that this consumer spending rebound could be nothing more than a "squatter bounce" as borrowers stopped paying their mortgages after realizing that didn't have the ability to pay the mortgage back.
The result of such actions would put an extra few grand in most families pocket each month. The effect of such newfound wealth would then have an extremely positive effect on consumer spending since we all love to spend like drunken sailors in this country.
Turns out this may be exactly what is going on:
"A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.
“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”
Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.
The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.
More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier"
My Take:
All I can do is chuckle after reading this. Folks, this "walking away/screw the bankers" mantra is one of the unintended consequences that I have warned about on here for over 2 years.
Borrowers have simply run out of options:
- They can't afford to short sell the house because they don't have the cash to do it.
- They also finally realize that they can't sell the house for what they paid for it as they watch prices continue to free fall all around them.
- Finally, they can't continue to pay the mortgage because they could never afford the house in the first place.
So what's an insolvent home owner to do? You take the only option left which is to just simply stop paying the mortgage.
This option is becoming a much easier route for more and more borrowers as the anger against Wall St increasingly turns into a full blown raging hatred for bankers.
The sheeple are finally realizing that they have been "fleeced" by the banksters. As their anger against Wall St continues to escelate month after month, they now feel less and less guilty around making the decision to stop paying their mortgage payments.
As you can see by the numbers above, there is nothing that Wall St can do right now but sit down and take it. They have no choice. They can't take action against the squatters and foreclose on the house because they can't afford to take the losses on the all of these foreclosures.
The only option the banks have is to slowly puch them out on small pieces. This is a better option for a myriad of reasons. It allows them to slowly absorb the losses and by keeping the number of foreclosures to a minimum it helps prop up prices.
As a result, the average amount of time spent in foreclosure before being kicked out has soared to 438 days vs. only 251 days in early 2008 as seen above.
More than 650,000 homes are now 18 months deliquent on paying their mortgages. This is DOUBLE the rate from a year ago. All I can say is.. OUCH! Houston we have a problem!!!!
I expect this number to continue and soar now that the borrowers see that Wall St is forced to let them live there for free for a good 2 years or so. I mean think about it! It's their only option for the reasons I described above. They must let the squatters squat!
They risk their own solvency if they take action against all of the "deadbeats" at once. I find it ironic that the demise of Wall St could very well be triggered by the average middle to upper middle class that they have been fleecing for decades.
The early reprocussions of such a "squatting boom" has triggered a nice pop in consumer spending. I must say thought that it's a shame that these people are pissing it away on trips to Disneyland instead of saving it as we all prepare for the oncoming depression.
Perhaps many of them are pissing the money away now because the laws in many states protect creditors which gives them the right to seize any cash and assets from those who defaulted on their loans.
The Bottom Line
The "squatter syndome" is a very alarming trend that appears to have legs. Anger towards Wall St continues to mount as the economy remains in shambles. As the "debt slaves" in this country continue to lose their jobs and run out of options, it will increase the risk of them taking out their anger out on the banks by "walking away" from their debt payments.
Making matters worse is the fact that the borrowers now realize that Wall St can do nothing about it if they decide stop paying. This will only embolden others to do the same.
The "uninted consequences" of such actions could potentially be catastrophic because none of this cannot be sustained. The banks will eventually run out of cash flow if they don't foreclose on bad loans.
One point should be made very clear here: The housing market is extremely distorted right now because millions find themselves stuck in their homes.
There has been no true price discovery in real estate as a result because people cannot afford to sell at the prices they need to and the banks can't afford to foreclose.
Prices in real esxtate cannot be trusted as a result because the real correction has not been recognized.
I will talk more about our ongoing correction tomorrow. There are many risks to the downside that are putting pressure on stocks.
Thursday, May 27, 2010
Party On! Denial is a Powerful Emotion
I thought this was an interesting video. You have the classic arrogant Keynesian ivy league economist in Dr. Sachs trading blows with noted hedge fund manager Hugh Hendry.
I don't think I need to tell you whose side I am on. Sitting and doing nothing like Dr. Sachs suggests is nothing more than additional can kicking. Hugh says let the banks die that took on too much risk and purge all of the bad debts out of the system.
Note: Hit the play button below:
My Take:
We have been taking the "head in the sand" Dr. Sachs route for about 4 years now which is when the credit markets first seized up.
How's that route been working out?
Need I answer? Foreclosures and unemployment are hitting new highs on a quarterly basis. The government continues to hide the losses hoping that the economy will recover. Things are getting worse on a daily basis despite what the stock market does.
WHEN ARE THESE KEYNESIANS THAT ARE RUNNING THIS COUNTRY GOING TO REALIZE THAT THIS IS NOT WORKING?
Hugh Hendry's answer is the only route out of this mess. We have been trying the "hide the trillions" game for four years now and things continue to get worse.
Wakeup America! The only people that are thriving right now are the oligarchs of this country.
I think this chart says it all:
This graph is a little dated but the trend is the same. The wealthy are thriving at the cost of the taxpayer. The bailouts are benefitting only those with wealth while we sit here and losr our jobs and default on our homes.
Remember back in 2008 when the banks were bailed out with TARP money and then had a very profitable 2009? You would have thought that this was a good thing because the banks could now work on fixing their balance sheets with the extra profits.
This would be the prudent thing to do when you are insolvent right?
So what did the bankers decide to do? Instead of fixing their balance sheets they pocketed half of the money in the form of bonuses. I mean I am sure they said why take the losses if the goverment isn't going to force us to?
Wall St literally makes me want to vomit. They are consumed with greed and they don't care who they have to destroy in order make a buck including you.
Bubble machines do not fix bad economies. Look at the char tabove: Housing prices are up 300% or more in the bubble areas and yet average incomes have only risen 13%.
This is insane! I see people come on here claiming that the housing correction is over after a 30% reduction in areas like DC. How can that be when prices rose 300% or more in a decade where wages were basically flat?
The only way we got here was through fraudulent lending. Sadly we have decided to continue and lend improperly via FHA because the goverment sees no solution other than to keep the party going. this will only lead to more bad loans and more losses.
Housing is still a bubble that still has not corrected. The problem is EXACTLY what Hugh says above: The bad debts need to be purged. What we have attempted to do so far is to ignore the losses which is not a solution.
Whats happening right now in markets like DC is people CANNOT afford to sell because they don't have enough equity in the house. They are basically "stuck".
The sellers don't have the cash to short sell so they either stop paying their mortgage and start squatting or they continue to be debt slaves and pray that prices come back. The banks aren't forcing them to do anything because they don't want to take the loss on a foreclosure.
I have had bankers tell me they would rather have someone sit in the house and take care of it versus foreclosing and leaving it empty. They are in no rush to fix the housing problem. Why would they be in a rush when the fraudulent accounting rules allow them to keep these garbage loans on the books without a penalty?
As a result, housing has turned ino a total cluster****. The prices you see you see on the MLS are nothing but a pipedream. There has been no real price discovery in most housing markets other than Vegas and a few others. Prices are flat or only slightly declining because the banks and home owners remain in a stalemate waiting to see who will blink first.
Meanwhile the bad debt just sits there rotting like roadkill on the side of the highway.
The same thing is happening on the commercial side of lending.
I have a banking source who just recently came back from a large finance convention. They have a commercial loan modification program that they are marketing to all of the large banks.
The banks basically told them they want nothing to do with the program because they don't believe their customers can afford even a modified loan! This is how bad this situation is!
For now we have chosen to continue and keep our heads in the sand and pretend that everythings ok. We more of that today in the markets when China said they will continue to support the European debt markets. Stocks took off and caught a lot of people short(including me...got pipped..oh well) which then created a large short covering rally which exacerbated the move higher.
The reality here is all we did today was successfully rearranged the deck chairs on the Titanic once again. The central banks are running around in a panic trying to keep everyone on the same page. China was taken care of...For now!
Here's the bottom line:
When REAL price discovery is seen in both housing/financial markets it's going to make the fall of 2008 look like a birthday party. The bad debts are still there rotting and they aren't going anywhere until they are cleared via getting paid off or default.
The longer we ignore the debt problem the longer we will suffer with a bad economy. There will be no recovery without exposing the debt skeletons that were created by the housing mania.
Sadly, the elites like the one above really don't care because they aren't the ones suffering.
I don't think I need to tell you whose side I am on. Sitting and doing nothing like Dr. Sachs suggests is nothing more than additional can kicking. Hugh says let the banks die that took on too much risk and purge all of the bad debts out of the system.
Note: Hit the play button below:
My Take:
We have been taking the "head in the sand" Dr. Sachs route for about 4 years now which is when the credit markets first seized up.
How's that route been working out?
Need I answer? Foreclosures and unemployment are hitting new highs on a quarterly basis. The government continues to hide the losses hoping that the economy will recover. Things are getting worse on a daily basis despite what the stock market does.
WHEN ARE THESE KEYNESIANS THAT ARE RUNNING THIS COUNTRY GOING TO REALIZE THAT THIS IS NOT WORKING?
Hugh Hendry's answer is the only route out of this mess. We have been trying the "hide the trillions" game for four years now and things continue to get worse.
Wakeup America! The only people that are thriving right now are the oligarchs of this country.
I think this chart says it all:
This graph is a little dated but the trend is the same. The wealthy are thriving at the cost of the taxpayer. The bailouts are benefitting only those with wealth while we sit here and losr our jobs and default on our homes.
Remember back in 2008 when the banks were bailed out with TARP money and then had a very profitable 2009? You would have thought that this was a good thing because the banks could now work on fixing their balance sheets with the extra profits.
This would be the prudent thing to do when you are insolvent right?
So what did the bankers decide to do? Instead of fixing their balance sheets they pocketed half of the money in the form of bonuses. I mean I am sure they said why take the losses if the goverment isn't going to force us to?
Wall St literally makes me want to vomit. They are consumed with greed and they don't care who they have to destroy in order make a buck including you.
Bubble machines do not fix bad economies. Look at the char tabove: Housing prices are up 300% or more in the bubble areas and yet average incomes have only risen 13%.
This is insane! I see people come on here claiming that the housing correction is over after a 30% reduction in areas like DC. How can that be when prices rose 300% or more in a decade where wages were basically flat?
The only way we got here was through fraudulent lending. Sadly we have decided to continue and lend improperly via FHA because the goverment sees no solution other than to keep the party going. this will only lead to more bad loans and more losses.
Housing is still a bubble that still has not corrected. The problem is EXACTLY what Hugh says above: The bad debts need to be purged. What we have attempted to do so far is to ignore the losses which is not a solution.
Whats happening right now in markets like DC is people CANNOT afford to sell because they don't have enough equity in the house. They are basically "stuck".
The sellers don't have the cash to short sell so they either stop paying their mortgage and start squatting or they continue to be debt slaves and pray that prices come back. The banks aren't forcing them to do anything because they don't want to take the loss on a foreclosure.
I have had bankers tell me they would rather have someone sit in the house and take care of it versus foreclosing and leaving it empty. They are in no rush to fix the housing problem. Why would they be in a rush when the fraudulent accounting rules allow them to keep these garbage loans on the books without a penalty?
As a result, housing has turned ino a total cluster****. The prices you see you see on the MLS are nothing but a pipedream. There has been no real price discovery in most housing markets other than Vegas and a few others. Prices are flat or only slightly declining because the banks and home owners remain in a stalemate waiting to see who will blink first.
Meanwhile the bad debt just sits there rotting like roadkill on the side of the highway.
The same thing is happening on the commercial side of lending.
I have a banking source who just recently came back from a large finance convention. They have a commercial loan modification program that they are marketing to all of the large banks.
The banks basically told them they want nothing to do with the program because they don't believe their customers can afford even a modified loan! This is how bad this situation is!
For now we have chosen to continue and keep our heads in the sand and pretend that everythings ok. We more of that today in the markets when China said they will continue to support the European debt markets. Stocks took off and caught a lot of people short(including me...got pipped..oh well) which then created a large short covering rally which exacerbated the move higher.
The reality here is all we did today was successfully rearranged the deck chairs on the Titanic once again. The central banks are running around in a panic trying to keep everyone on the same page. China was taken care of...For now!
Here's the bottom line:
When REAL price discovery is seen in both housing/financial markets it's going to make the fall of 2008 look like a birthday party. The bad debts are still there rotting and they aren't going anywhere until they are cleared via getting paid off or default.
The longer we ignore the debt problem the longer we will suffer with a bad economy. There will be no recovery without exposing the debt skeletons that were created by the housing mania.
Sadly, the elites like the one above really don't care because they aren't the ones suffering.
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