Thursday, July 21, 2011

Things Keep Getting Worse...

First, anyone who has not read this commentary out yesterday from Casey Research needs to read it.  One of my theses is that our Government has been morphing into the type of totalitarian control portrayed by George Orwell in "Animal Farm" and "1984."  The signs are everywhere, but please read this if you think I'm nuts:
Sometimes it seems that the more we write about the rise of the surveillance state, the more examples of its long-armed reach pile up. Recently, a couple of new (to me, anyway) developments caught my eye  Big Brother is watching you
Second, it was reported on Tuesday that new housing starts hit a 5-month high.  That's great, but who are they going to sell these new homes to?  On the heels of that report, the National Association of Realtors reported that existing home sales for June dropped to a seven-month low.  Hmmm...June is supposed to be one of the peak selling months of the year.  Not only that, but the cancellation rate for contracts booked in May spiked up to 16%.  Not only that, but inventory - as measured strictly by the NAR - enlarged.  Not only that, but the way the NAR reports its data has been under scrutiny for quite some time and by some accounts the NAR has overstated sales historically by as much as 20%.  The NAR is reviewing its methodology but my bet would be that their numbers suck.  Here's a news report:  LINK  The bottom line is that the housing market is not even close to a bottom..

Before you argue with my view, take a look at some hard proof that the fundamentals underlying the housing market are deteriorating.  MGIC, the mortgage insurer, issued its quarterly earnings on Monday and reported a big loss due to liability payments it had to make on growing portfolio of insured mortgages going bad.  The stock got hammered.  Here's the LINK  To add to this, Genworth, the insurance business spun-off by GE, reported last night that its earnings for the quarter would be hit by a $300 million charge it would take in order to reserve against increasing liability at its mortgage insurance unit.  Here's the LINK

The dynamic here is that not only are the buyers in the housing market drying up, but on average the ability of homeowners to make their monthly mortgage nut is declining.  I find it quite amusing that the TBTF fail banks have been reporting earnings this quarter which are driven by non-cash, non-economic earnings manufactured by reducing their reserves for bad mortgages and credit cards.  Obviously the decision to assume lower mortgage write-offs down the road looks to be pre-mature based on the actual experiences being reported by MGIC and Genworth...Funny because the headline coming across Marketwatch as I write this says "U.S. stocks rise on optimism for financials."  LOL

Finally, contrary to the happy proclamations by Bernanke and Geithner that the economy is improving, again real life experience is proving that things are getting worse, as now consumers are starting to put an increasing amount of their necessity purchases on a credit card:
Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food,” said Tavares, who’s based in Atlanta. “That’s because there’s been no other positive catalyst, like an increase in wages, to offset higher prices. It’s a cash-flow problem
Here's the LINK  I would like to point out that food and gasoline are two major consumption components that the Government uses to calculate its widely used measure of inflation (the core CPI).  It's also the same metric that Bernanke uses when he lectures to everyone that there is no inflation in the system...To that I simply say "things keep getting worse" - Orwell is smiling in his grave.


  1. Dave: to "complement" your discussion (not only for what it is but to augment it). We are also at a point where homeowners who are close to breakeven on their mortgages and home values do not want to pay even if they can because they do not want to be played as suckers. They now expect home prices to further decline and there is no point in paying further especially when they can stay in house for a long time anyway, or if fortunate, have the paper holder contact them to reduce mortgage to make it a better deal for the homeowner (or simply default, save the money and buy a nicer house at distressed price)

    We personally know of a few folks underwater who have stopped paying the mortgage-but they continue to spend on trips, cars, clothing, parties, jewelry (I guess in bankruptcy they cannot take away jewelry they cannot find) etc. There is no discipline involved whatsoever irregardless of the personal situation.

    We had better all stay awake for this as its gonna be a hell of a train wreck.

    This whole thing is so FUBAR that we need Monty Hall (let's make a deal) to run the show. And he probably could do a hell of a lot better than the lunatics in DC running the show.

  2. (Dave)

    LOL. Not only do they not want to be "suckers" but now in most States people can go 18 months to 3 years not making a mortgage payment and not getting foreclosed out of the house.

  3. Big brothers claw might be knocking on your door!...he has a good solution:)

    Warren Gets Bitch Slapped Thrice

  4. There is no discipline because they (the elites) broke all the moral breakdown follows...a lot of people have had their F**k them moment!

    Mike Krieger On The "High End" Bubble
    The only thing that has happened is that the super, super rich (0.1%
    of the country) and their puppets in D.C. neglected to use their
    positions of power during the 2008 crisis to help their country and
    their fellow citizen get back on their feet and reform the system, but
    rather they decided to totally raid, abuse and pillage their fellow
    Americans in an act of unprecedented greed and recklessness.

    Warren Buffett's Wells Fargo Busted For Lying To People, Wristslapped With $85 Million Fine By The Emperor Of Moral Hazard Himself

    Bernanke Employs a Modified 'Pump and Dump'

    Trillions of dollars have been used on price discovery, especially in
    the stock market, but 45 million people continue on food stamps and
    the average duration of unemployment is now twice the previous record.
    Banks are enjoying healthy profitability, assisted by loan loss
    accounting, at the same time withholding credit from all but the
    largest obligors. Individual American savers who are doing everything
    right are bearing the brunt of all this monetary success, as zero
    interest rates transfer money from them to the very banks that
    colluded in creating this disaster in the first place.

  5. " you can't cheat an honest man"