I just had to comment on this idiocy this morning. CNBC has been jumping for joy all moring after the numbers below were announced:
"U.S. residential construction rose more than expected in August to a four-month high, suggesting the embattled housing market was starting to stabilize following the end of a homebuyer tax credit.
The Commerce Department said Tuesday housing starts rose 10.5 percent, the largest increase since November, to a seasonally adjusted annual rate of 598,000 units.
July's residential construction was revised down to show a 0.4 percent gain, which was previously reported as a 1.7 percent increase.
Analysts polled by Reuters had expected housing starts to rise to a 550,000-unit rate. Compared to August last year, housing starts were up 2.2 percent.
"Housing starts are at very low levels but we're clearly seeing a solid bottom in the housing market. It's too early though to call it a housing market recovery," said Matthew Strauss, a senior currency strategist at RBC Capital in Toronto"
My Take:
Give me a second here so I can stop laughing at the highlighted quote above.
Are these people frickin insane???? We already have 12.5 months of inventory plus god knows how much shadow inventory. Why in the hell are we building more houses given these facts?
Also, why is this number viewed as being bullish? CNBC paraded this number around this morning like it was the holy grail that had just saved the economy.
I am amazed at how delusional people have become. The media has become a total joke at this point. Reporters should be calling the CEO's of these builders and asking them why in the hell they are building when inventories are at all time highs?
All they are doing is making a bad problem 10 times worse by adding to the insane backlog of homes that we already have.
This number should be ridiculed not heralded.
God, I wish I had the money to start up a network that reported the truth. Bonds are up once again today as more and more people continue to walk away from the stock market.
Should it be any surprise when BS news like this is praised?
Ahhhhh...Feel better now after getting that off my chest. I just heard one of the pumpers on CNBC ask why the market was down following the "great news" on the housing starts.
Ummmm...Let me take a stab at that one: Because anyone with half a brain understands that this is very bad news and only exacerbates the troubles we have in housing.
Focus on the Fed later today. If we get no additional QE outta the Fed(which is what I expect), then the market could sell off a bit because we are pretty oversold. Many in the markets are looking for some additional QE juice in order to keep the rally going.
Tuesday, September 21, 2010
Monday, September 20, 2010
It's Official: The Recession is Over!
Put on your party hats folks! It's time to celebrate!!!! This recession is soooo OVER!
WOO HOO! PARTY TIME!
Damn! I feel so much better now. I think it's time to buy a house! Anyone know a good broker out there?
I don't have a down payment for it though but that's OK right?(sarcasm off)
In case you missed the great news here it is:
"The U.S. recession ended in June 2009, making it the longest downturn since the Great Depression of the 1930s, the National Bureau of Economic Research said Monday.
In Monday's announcement, the NBER said any fresh downturn would mark a new recession, not a continuation of the one that began in December 2007."
Quick Take:
Uhhhh...When did we get out of the last recession? In fact, now that I think about it, did we ever leave the one that "ended" in 2002? Anyone that's looked at their 401k since then would tell you no.
The stock market of course loved today's news as we rallied up triple digits.
The bond market however sang a totally different tune when you look at the 10 year:
My Take:
As you can see above, investors started flying into the safety of bonds right around 11:00.
You need to seriously ask yourself why bonds were up on a day the stock market rallied 145 points after getting the great news that the recession was over.
How on earth does this make sense? The answer is it doesn't. The market distortions continue and I haven't seen anyone that can explain this type of price action.
The way I see it the signal from the market is very clear: Many investors are still scared to death. Gold hit new all time highs again last night. If the risk trade is on then why in the hell are bonds and gold rallying?
More importantly, how is the hell are all three rallying(stocks, gold, and bonds) at the same time? The market is acting completely irrational right now.
Where is all the money coming to pump virtually every asset higher? I smell a rat and I wish I knew what the answer was. Soon enough we will learn why. The market always gives us the answers.
The problem is a lot of the times you get the answers until after its too late.
The Bottom Line
I'll keep it fairly brief tonight because there is really nothing to analyze here. All I can say is BUYER BEWARE.
I don't like how the market is acting one bit. I would still remain very cautious. If I had to guess I believe stocks rallied based on technicals.
A lot of technicians were looking at the 1130 level because it's the high end of the recent trading range we've been in. Once we convincingly broke through here I believe the HFT algos kicked in with buy orders which forced some short covering.
The problem here folks is we can't continually trade based on technicals that are being set by computers. Eventually the fundamentals always matter and right now they totally stink.
Unemployment is soaring, housing prices are plummeting, and the consumer is rapidly running out of credit.
The market is flashing you a gigantic "warning" sign as safe havens like bonds and gold soar to new highs.
I wouldn't be surprised to see some more upside action after breaking through 1130. Longer term however I just don't see how any of this is sustainable.
Please be careful out there and don't believe the hype about the recession being over. If anything the recession is over because we have now sunk into a depression.
Disclosure: No new positions taken at the time of publication.
WOO HOO! PARTY TIME!
Damn! I feel so much better now. I think it's time to buy a house! Anyone know a good broker out there?
I don't have a down payment for it though but that's OK right?(sarcasm off)
In case you missed the great news here it is:
"The U.S. recession ended in June 2009, making it the longest downturn since the Great Depression of the 1930s, the National Bureau of Economic Research said Monday.
In Monday's announcement, the NBER said any fresh downturn would mark a new recession, not a continuation of the one that began in December 2007."
Quick Take:
Uhhhh...When did we get out of the last recession? In fact, now that I think about it, did we ever leave the one that "ended" in 2002? Anyone that's looked at their 401k since then would tell you no.
The stock market of course loved today's news as we rallied up triple digits.
The bond market however sang a totally different tune when you look at the 10 year:
My Take:
As you can see above, investors started flying into the safety of bonds right around 11:00.
You need to seriously ask yourself why bonds were up on a day the stock market rallied 145 points after getting the great news that the recession was over.
How on earth does this make sense? The answer is it doesn't. The market distortions continue and I haven't seen anyone that can explain this type of price action.
The way I see it the signal from the market is very clear: Many investors are still scared to death. Gold hit new all time highs again last night. If the risk trade is on then why in the hell are bonds and gold rallying?
More importantly, how is the hell are all three rallying(stocks, gold, and bonds) at the same time? The market is acting completely irrational right now.
Where is all the money coming to pump virtually every asset higher? I smell a rat and I wish I knew what the answer was. Soon enough we will learn why. The market always gives us the answers.
The problem is a lot of the times you get the answers until after its too late.
The Bottom Line
I'll keep it fairly brief tonight because there is really nothing to analyze here. All I can say is BUYER BEWARE.
I don't like how the market is acting one bit. I would still remain very cautious. If I had to guess I believe stocks rallied based on technicals.
A lot of technicians were looking at the 1130 level because it's the high end of the recent trading range we've been in. Once we convincingly broke through here I believe the HFT algos kicked in with buy orders which forced some short covering.
The problem here folks is we can't continually trade based on technicals that are being set by computers. Eventually the fundamentals always matter and right now they totally stink.
Unemployment is soaring, housing prices are plummeting, and the consumer is rapidly running out of credit.
The market is flashing you a gigantic "warning" sign as safe havens like bonds and gold soar to new highs.
I wouldn't be surprised to see some more upside action after breaking through 1130. Longer term however I just don't see how any of this is sustainable.
Please be careful out there and don't believe the hype about the recession being over. If anything the recession is over because we have now sunk into a depression.
Disclosure: No new positions taken at the time of publication.
Sunday, September 19, 2010
Condo Owners Beware!
During my travels last week in Florida I had a chance to see the housing collapse first hand. The stories that I heard from some retirees I talked to down there about real estate are catastrophic.
I wanted to focus on one story that I heard from a older retired fellow from Orlando. I will finish with another story that a broker told me about a housing developement in Arizona.
One of my fears post collapse was figuring out how the HOA's(Home Owners Associations) of various 1/2 empty condo complexes would survive without nailing their tenants with massive increases in HOA fees.
HOA fees are set assuming that the building will be fully occupied. At the peak of the bubble the HOA fees were relatively low based on this assumption.
The problem here of course is the cost of maintaining the building does not drop.
So just do the math if the complexes remain say 50% empty: If you have a 100 unit condo complex that has only 50 occupants the HOA fees eventually must double in oreder to pay the bills.
From what I heard in Florida the rising fees were actually worse. The retiree that I spoke to generously explained his dire situation to me:
This gentleman bought 2 condo units at the peak of the bubble for $300,000 each. The HOA fees at the time of purchase were paid quarterly and the cost in 2006 was $600 per unit.
My how things have changed:
He went on to explain to me that the value of each unit in 2010 has now dropped from $300,000 down to $120,000.
If this isn't bad enough wait until you hear his 2010 HOA fees. They have now risen from $600 per unit per quarter up to a whopping $1600 per quarter.
He is now in a panic because he can't afford to take the loss on the properties and the $13,000 in HOA fees are starting to cripple him.
I asked him if he had spoke to an attorney and he said that he hadn't but was getting ready to do so.
He also explained that there are actually laws in Florida that are more strict than other states when it comes to regualting HOA's. The problem is(according to this guy) they can easily be bypassed with a few accounting gimmicks.
Bottom Line:
If you own a condo in a building that is not filled please be aware that your HOA will eventually rise. The electric bill has to be paid and the builder has no desire or ability to cover the costs.
They are all bankrupt as a result of holding onto homes/condos that they cannot sell. It will be up to the tenants to carry the costs of the building.
Also:
I went over to Disney during my stay and it was a total ghost town. The locals say things are only busy now when a convention is in town.
Arizona
Believe it or not this story is WORSE then the one above. I spoke to a mortgage broker friend of mine who just did a loan for a school principal that moved to the Northeast from Arizona.
The broker was almost unable to get the deal done even though the persons salary was 130k per year.
I of course asked him why and he explained that the guy had taken a huge hit on his house in Arizona. He then gave me the details and folks they were flat out shocking.
The development where this principal moved from contained 300 housing units. At the peak they were selling from $500,000-700,000.
The broker's client of course bought at the peak. I then asked "well what are they worth now?"
His client explained to him that his house is now worth about $150,000. I don't know what he actually paid but it was somewhere between the range above.
Now get this:
The client also explained that 180 of the 300 units in the development in Arizona are now in foreclosure. There were an additional 90 units that were pending and about to head into foreclosure.
When this guy left Arizona there were only 2 people left living in the homes on his street.
So essentially 270 of of the 300 units will be in foreclosure within the next few months. People apparently started walking away in droves as the value of the houses dropped over 70% in value.
The broker then asked his client what he could now rent his home for. His client was told by a Realtor that he could get about $850 a month.
I said to my friend..." $850 dollars!!!!!!! Are you frickin kidding me? 4 years ago these joints were selling at 700k." He said "Yup that's right....Those are the numbers."
I am amazed my broker friend was able to get the guys loan done. With a six figure salary I guess you can make it work.
The Bottom Line
Folks, anyone telling you we are now in a recovery are smoking crack. I talk to people all the time in the housing industry and the bubble areas are getting slaughtered and nothing is coming back in value.
I did a little math on the housing developement above. Let's be conservative and assume that the bank has to take a $200,000 loss on the 270 units above. The total loss using these numbers is a whopping $54 million and this is only 1 housing developement!
Imagine how many others that are out there that we don't know about.
The take home message here folks is stay the hell away from housing. Don't buy one for several more years.
Once all of this inventory hits the MLS houses will be selling a fraction of where they are today.
The last housing inventory data was 12.5 months which is more than double the historical norms of 6 months. The problem here is this does not include the shadow inventory which has to be mind boggling high when you hear stories like the ones I just shared with you.
I don't know how the banks are ever going to be able to afford to take these losses.
Needless to say: The housing market from everything I have gathered is going to completely meltdown in the very near future.
The Fed might be able to hide this mess more a few more months. Maybe a year at the most.
The problem is the word is getting out about how bad it is. This is why you are seeing the lowest home sales on record despite the lowest interest rates in history.
Have a great night and stay the hell away from real estate.
I wanted to focus on one story that I heard from a older retired fellow from Orlando. I will finish with another story that a broker told me about a housing developement in Arizona.
One of my fears post collapse was figuring out how the HOA's(Home Owners Associations) of various 1/2 empty condo complexes would survive without nailing their tenants with massive increases in HOA fees.
HOA fees are set assuming that the building will be fully occupied. At the peak of the bubble the HOA fees were relatively low based on this assumption.
The problem here of course is the cost of maintaining the building does not drop.
So just do the math if the complexes remain say 50% empty: If you have a 100 unit condo complex that has only 50 occupants the HOA fees eventually must double in oreder to pay the bills.
From what I heard in Florida the rising fees were actually worse. The retiree that I spoke to generously explained his dire situation to me:
This gentleman bought 2 condo units at the peak of the bubble for $300,000 each. The HOA fees at the time of purchase were paid quarterly and the cost in 2006 was $600 per unit.
My how things have changed:
He went on to explain to me that the value of each unit in 2010 has now dropped from $300,000 down to $120,000.
If this isn't bad enough wait until you hear his 2010 HOA fees. They have now risen from $600 per unit per quarter up to a whopping $1600 per quarter.
He is now in a panic because he can't afford to take the loss on the properties and the $13,000 in HOA fees are starting to cripple him.
I asked him if he had spoke to an attorney and he said that he hadn't but was getting ready to do so.
He also explained that there are actually laws in Florida that are more strict than other states when it comes to regualting HOA's. The problem is(according to this guy) they can easily be bypassed with a few accounting gimmicks.
Bottom Line:
If you own a condo in a building that is not filled please be aware that your HOA will eventually rise. The electric bill has to be paid and the builder has no desire or ability to cover the costs.
They are all bankrupt as a result of holding onto homes/condos that they cannot sell. It will be up to the tenants to carry the costs of the building.
Also:
I went over to Disney during my stay and it was a total ghost town. The locals say things are only busy now when a convention is in town.
Arizona
Believe it or not this story is WORSE then the one above. I spoke to a mortgage broker friend of mine who just did a loan for a school principal that moved to the Northeast from Arizona.
The broker was almost unable to get the deal done even though the persons salary was 130k per year.
I of course asked him why and he explained that the guy had taken a huge hit on his house in Arizona. He then gave me the details and folks they were flat out shocking.
The development where this principal moved from contained 300 housing units. At the peak they were selling from $500,000-700,000.
The broker's client of course bought at the peak. I then asked "well what are they worth now?"
His client explained to him that his house is now worth about $150,000. I don't know what he actually paid but it was somewhere between the range above.
Now get this:
The client also explained that 180 of the 300 units in the development in Arizona are now in foreclosure. There were an additional 90 units that were pending and about to head into foreclosure.
When this guy left Arizona there were only 2 people left living in the homes on his street.
So essentially 270 of of the 300 units will be in foreclosure within the next few months. People apparently started walking away in droves as the value of the houses dropped over 70% in value.
The broker then asked his client what he could now rent his home for. His client was told by a Realtor that he could get about $850 a month.
I said to my friend..." $850 dollars!!!!!!! Are you frickin kidding me? 4 years ago these joints were selling at 700k." He said "Yup that's right....Those are the numbers."
I am amazed my broker friend was able to get the guys loan done. With a six figure salary I guess you can make it work.
The Bottom Line
Folks, anyone telling you we are now in a recovery are smoking crack. I talk to people all the time in the housing industry and the bubble areas are getting slaughtered and nothing is coming back in value.
I did a little math on the housing developement above. Let's be conservative and assume that the bank has to take a $200,000 loss on the 270 units above. The total loss using these numbers is a whopping $54 million and this is only 1 housing developement!
Imagine how many others that are out there that we don't know about.
The take home message here folks is stay the hell away from housing. Don't buy one for several more years.
Once all of this inventory hits the MLS houses will be selling a fraction of where they are today.
The last housing inventory data was 12.5 months which is more than double the historical norms of 6 months. The problem here is this does not include the shadow inventory which has to be mind boggling high when you hear stories like the ones I just shared with you.
I don't know how the banks are ever going to be able to afford to take these losses.
Needless to say: The housing market from everything I have gathered is going to completely meltdown in the very near future.
The Fed might be able to hide this mess more a few more months. Maybe a year at the most.
The problem is the word is getting out about how bad it is. This is why you are seeing the lowest home sales on record despite the lowest interest rates in history.
Have a great night and stay the hell away from real estate.
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