Don't Believe the Hype!

Wall St's propaganda machine came out in full force this morning as Goldman came out with an upgrade on Citigroup.  This goosed the markets higher. 

CNBC meanwhile was pumping the 10% increase in existing home, sales which at 4.53 million, was the 3rd lowest on record.   Also note that this number stil includes tax credit sales which were extended until September 30th.  This number is essentially meaningless.

We continue to see unprecedented moves in the markets this morning.

The dollar is once again falling, and the Yen is soaring which is bad bad bad for Japan.  Their central bank must be in a panic as their export driven economy gets crushed by the soaring Yen.  Here is a chart of the dollar:

Gold, oil, and commodities all surged higher on the news which is bad news for prices down the road.

Treasuries also soared today as well despite the 100 point rally in stocks.  This of course makes no sense but let's be honest:  Does anything make sense at this point when it comes to the stock market?  Here is the 10 year yield:

Folks, none of this is good.  I see we have already given back half of the gains since I started this post. 

None of this makes any fundamental sense, and the Citigroup upgrade is a complete joke. 

Lot's of noise and zero substance.

Until later.

Housing Prices Plunge in Sept/Oct.

This is ugly:

"Clear Capital issued a market alert Friday after identifying what the company called a “dramatic change” in U.S. home prices.

The valuation firm’s index is showing a 5.9 percent two-month drop in home prices through September and October, representing a magnitude and speed of decline not seen since March 2009, the height of the housing downturn.

“Clear Capital’s latest data through October 22 shows even more pronounced price declines than our most recent Home Data Index market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician for Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced/

With a falloff of nearly 6 percent in just two months, home prices are now at the same level as in mid-April 2010, two weeks prior to the expiration of the federal government’s homebuyer tax credit, according to Clear Capital.

The company says both its home price index and the S&P/Case-Shiller indices have displayed consistent market peak, trough, secondary trough, and tax credit run-ups."

My Take:

Should we be surprised?  No...Concerned?  Yes.

When you take stimulus away gravity eventually hits.  Add a crisis like foreclosuregate on top of it and it's that much worse. 

Like any crack addict that hasn't had a hit of the crackpipe in awhile, you can expect the ensuing drop back to reality to be both fast and violent.

Clear Capital are usually the first ones out with the most recent housing data which means you can expect Case/Shiller to look the same in the following months.

The idea that housing prices are dropping this fast when interest rates are this low is really disturbing.  It tells me that people have all but given up on the housing market.  If this trend continues we are in deep trouble.

Moral Hazard is the biggest fear that I see as prishes start to crash:

As prices continue to fall, more and more loans end up being "underwater".  The ones that are already underwater then become completely hopeless.  The risk here of course is that borrowers start "walking away" in masses as they realize they were suckered into a Ponzi scam that leaves them worthless and jobless.

America is waking up folks.  If they were still clueless they wouldn't be slashing the prices on their homes like this.  They would also be buying new ones which they aren't. 

I said from the beginning that when the housing Ponzi crashes it's going to end with a mad rush to the exits all at once.

Gravity has shown us time and time again that what goes up must come down.

Edit:

Tonights piece on 60 Minutes is more proof that people are getting angry and desperate as our own version of The Great Depression conitnues to intensify:

A Must Read

I came across this excellent piece that was written by Casey Report contributor James Quinn over the weekend.

James shares some excellent data points and explains how we have seen this economic picture before.  I will share a snippet below, but I suggest that you click over and read the whole piece:

"Today’s Keynesian economists have convinced boobus Americanus that the Great Depression was caused by the Federal Reserve being too tight with monetary policy and the Hoover administration not providing enough fiscal stimulus. Ben Bernanke and Barack Obama used this line of reasoning to ram through an $850 billion pork-laden stimulus package, as well as the purchase of $1.2 trillion of toxic mortgages by the Federal Reserve.


The only trouble is that this storyline is a complete sham.

The fact that colossal stimulus spending, zero interest rates, the purchase of over a trillion in toxic assets by the Fed, and the loosest monetary policy in history have done absolutely nothing to revitalize the economy, has proven that Keynesian policies have been a wretched failure. This is not a surprise to Austrian school economists.

Keynesian policies failed during the Great Depression, and they are failing today. An economic catastrophe caused by loose monetary policies, crushing levels of debt, and appalling lending practices cannot be solved by looser monetary policies, issuance of twice as much debt, and government commanding banks (or, in the case of Fannie and Freddie, “commandeering”) to make more bad loans.

Ludwig von Mises described what happened in the 1920s and 1930s. His explanation accurately illustrates the situation in America today.

"There is no means of avoiding the final collapse of a boom brought on by credit and fiat monetary expansion. The only question is whether the crisis should come sooner in the form of a recession or later as a final and total catastrophe of depression as the currency systems crumble.”

The Roaring Twenties

They don’t call the 1920s roaring because money wasn’t flowing freely and consumers were practicing frugality. The newly created Federal Reserve expanded credit by setting below-market interest rates and low reserve requirements that favored the big Wall Street banks. The Federal Reserve increased the money supply by 60% during the period following the recession of 1921. By the latter part of the decade, "buying on margin" entered the American vocabulary as more and more Americans overextended themselves to speculate on the soaring stock market.

The 1920s marked the beginning of mass production and the emergence of consumerism in America, with automobiles a prominent symbol of the latter. In 1919, there were just 6.7 million cars on American roads. By 1929, the number had grown to more than 27 million cars, or nearly one car for every household. During this period banks offered the country's first home mortgages and manufacturers of everything – from cars to irons – allowed consumers to pay "on time." Installment credit soared during the 1920s. About 60% of all furniture and 75% of all radios were purchased on installment plans. Thrift and saving were replaced in the new consumer society by spending and borrowing.

Encouraging the spending, the three Republican administrations of the 1920s practiced laissez-faire economics, starting by cutting top tax rates from 77% to 25% by 1925. Non-intervention into business and banking became government policy. These policies led to overconfidence on the part of investors and a classic credit-induced speculative boom. Gambling in the markets by the wealthy increased. While the rich got richer, millions of Americans lived below the household poverty line of $2,000 per year. The days of wine and roses came to an abrupt end in October 1929, with the Great Stock Market Crash.

Between 1929 and 1932, the market fell 89% from its high. The Keynesian storyline is that Herbert Hoover’s administration did nothing to try and revive the economy. It took Franklin Delano Roosevelt and his New Deal Keynesian policies to save the country. It’s a nice story, but completely false. Between 1929 and 1933, when Roosevelt came to power, the Hoover administration increased real per-capita federal expenditures by 88%, not exactly austere."