“Growth” 100% manufactured

November 22, 2009

At the end of October we pointed out that the “Cash for Clunkers” debacle provided 47.4% of the growth claimed for Q3. Now Marketwatch is reporting: “Last month, the Commerce Department said real gross domestic product grew at a 3.5% annualized rate, the first gain in a year. On Tuesday, that figure is likely to be revised to about 2.8%.”

Heh, heh…

That takes the “Cash for Clunkers” portion of the “growth” to 59.3%! Witnessing the high pressure hose of money being sprayed out of every arm of the US government it doesn’t take genius IQ to work out that Q3 was actually negative absent the government’s involvement.


Price of gold

November 22, 2009

Gold has had its ups and downs, of course. It is trading today at roughly the same real price as in the mid-13th Century — when an ounce bought a light suit of chain mail.



Cataclysmic outcome reaching near certainty

November 20, 2009

We have kept a fairly open mind over the last two years as to the extent of the collapse. We have heavily leaned in the direction of depression rather than recession but have seen a deep and long recession as a possible outcome.

Economic events are social creations so the reactions to problems are very important. What we have seen has been a complete unwillingness to acknowledge any flaws in the model of how the US is operating and a “do whatever it takes” mentality to keep the status quo.

This article in the NY Times highlights what we believe will be a genuinely cataclysmic event for the US when it explodes:

SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.

A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”

In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.

In 2007, the government did not insure a single mortgage in this city, one of the most expensive in the country. Buyers here, as well as in Manhattan, Santa Monica and every other wealthy area, were presumed to be able to handle the steep prices and correspondingly hefty down payments on their own.

Some F.H.A. borrowers here say they have the cash for a full down payment but would rather invest it in the stock market or use it for remodeling. Others, like Mr. Rowland and his friends, simply do not have the money required by private lenders — which would have been nearly $200,000, in their case.

“We were resigned to waiting another year,” said a second partner, Michael Bedar, 31. “Then we read about the F.H.A. I had never heard of it before, and couldn’t quite believe it. But it was the answer to our problems.” They put down about $33,000, split among the three of them.

Even some San Francisco agents who are doing F.H.A. deals worry about the long-term consequences. Real estate commissions are 6 percent. If the value of a property were to hold steady, a seller who put down the F.H.A. minimum would suffer a loss after fees. And while the Bay Area has traditionally been an excellent investment, the last few years have proved a big exception.

“Is this going to be the next wave of the housing downturn?” asked Eileen Bermingham, an agent with Pacific Union. “With such a minimal down payment, how do we make sure people don’t get in over their heads?”

The F.H.A. commissioner, David H. Stevens, said recently that its loans were relatively safe because the buyer was required to live in the property. They “are for shelter. They aren’t speculative-type investments,” Mr. Stevens said.

But the idea of a house as an investment dies hard. Mr. Bedar, Mr. Rowland and the third partner in their property, Jordan Kurland, are all in the technology field, but their dreams of wealth do not feature stock options.

“We’re banking on real estate,” said Mr. Kurland, 24. “Everyone expects prices to keep going up.”

Mr. Kurland and Mr. Bedar, who are employed full time, are the buyers of record. Mr. Rowland, a freelancer, will have his interests protected by a legal agreement.


November 18, 2009

November 6, 2009

November 6, 2009

Fed’s Treasury buying spree

November 1, 2009

Oct. 29 (Bloomberg) — The Federal Reserve completed its $300 billion Treasury purchase program today amid signs the seven-month buying spree helped stabilize the housing market and limited increases in borrowing costs.

Yields on the benchmark 10-year note, which help determine rates on everything from mortgages to corporate bonds, never rose above 4 percent after the central bank began acquiring the debt. They are less than half a percentage point higher than the day before the program was announced on March 18, even though the U.S. sold a record $1.25 trillion in notes and bonds, more than double the amount in the year-earlier period.

“The Fed’s purchases likely restrained rates from rising faster during the April through June period when 10-year notes went to about 4 percent,” saidGeorge Goncalves, chief fixed- income rates strategist in New York at Cantor Fitzgerald LP, one of the 18 primary dealers of U.S. government securities that trade with the Fed.

The purchases were the first of U.S. Treasuries by the central bank to keep borrowing costs low since the 1960s. The Fed joined its counterparts in the U.K. and Japan in extraordinary debt-buying programs, broadening efforts to unlock credit and end the worst recession since the 1930s after cutting the benchmark U.S. interest rate to a range of zero to 0.25 percent.

Final Purchase

The Fed bought $1.936 billion in debt today through eight securities maturing from December 2013 to September 2014, according to a Federal Reserve Bank of New York statement.

Longer-maturity Treasuries rallied the most since 1962 when the Fed said March 18 it would start buying the securities. That day, Treasury 10-yearyields fell almost half a percentage point to 2.52 percent as the Fed surprised investors by expanding the debt purchase portion of its so-called quantitative easing policy, which already included $1.45 trillion of agency and mortgage-backed debt.

The arrows below show the start and finish of the program on the S&P:

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UK Income to Housing ratios

October 31, 2009

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Fannie Mae Seriously Delinquent Rate

October 31, 2009

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Subprime origination back to peak levels!

October 30, 2009

Wanna get a taste of how bad the next leg is gonna  be?

New mortgage loan originations considered “subprime” are taking back their pre-crisis market share levels, according to the most recent economic letter by the Federal Reserve Bank of San Francisco.

As the presence of private-label or non-agency securitization declined with the unfolding of the housing crisis, the market share of Ginnie Maesecuritizations — backed by Federal Housing Administration (FHA)-insured loans — swelled.

Since the middle of 2007, non-agency securitization and originations slipped, said San Francisco Fed economist John Krainer. Ginnie Mae, which bears the full faith and credit of the US government, stepped in to fill that gap as FHA activity soared. Ginnie’s activity, inlcuding agency securitization by Freddie Mac (FRE: 1.21 -6.20%) and Fannie Mae(FNM: 1.04 -7.14%), the agencies own or gurarantee nearly 96% of new residential mortgage lending.

Around 10% of originations in the San Francisco Fed’s Q406 sample were labeled by originators as “subprime,” according to Krainer. In the total US mortgage market, subprime loans accounted for about 20% of originations in 2006. Despite a nearly zero market share of subprime by Q108, Krainer said, increased FHA lending — identified in the securitization industry by Ginnie Mae’s share — revived the subprime segment of the market.

“After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20%, the same share as when subprime securitization peaked in 2006,” Krainer said.

This reflation desperation is being undertaken on the backs of a workforce that is at an official 17% level if we look at U-6 unemployment! In 2006 the mortgage money was flowing into the hands of practically every one through endless HELOC’s and the most generous extension of unsecured credit in history.

2009-10-30_1318

Logic would suggest that if the party is roaring like 2006 that Irvine would once again be a center of irresponsible lending and the Ferraris are flying off the lot in Newport Beach.  The chart above shows the actual reality. Subprime is now almost completely government issued.

In very related news “Cash for Clunkers” added 47.4% of the total growth claimed for Q3 2009 with a 157.6% spike in motor vehicle output. With hedonic adjustments these figures are always suspect at the best of times but at this juncture the pressure to hit the number must have been intense (or simply mandatory if you wanted to retain your employment).