Friday, June 28, 2013

The Housing Market Is An Accident Waiting To Happen: Part 2

Builder home "sales" at risk...But now that the monthly payment has skyrocketed over the past 6 weeks [from much higher mortgage rates] now they [homebuyers] can "afford" 20% less. Thus, right now builders and mortgage lenders are scrambling to try and recover the lost "affordability" through shoving higher-risk ARMs down borrowers throats, requiring much larger cash-in at close, removing upgrades etc. Needless to say, this spike in mortgage rates from the low 3%'s to the mid-to-high 4%'s changes everything for the majority of New Home buyers several months back, which don't really "buy" the house at the time of contract.  - Mark Hanson, private housing market consultant
For the record, Hanson has been by far the most accurate of any of the housing market analysts out there (I'm talking the real ones, not the Wall Street shills plus the interminably, tragically stupid Mark Zandi).  He was a former mortgage broker who adds invaluable, truthful insight to the entire sector.  The comment above is from a note to his subscribers, but you can follow his freebie material here:   LINK

I wanted to share Part 2 of my housing market analysis, which was posted on Seeking Alpha last night.  From a couple of the comments already posted, it's apparent that the commenters did not read Part 1, which you can access HERE.

I'm just stupefied by the number of "Squawkers" that push the housing recovery idea and yet completely ignore the decline going in income and disposable income; the spike in mortgage rates; and the percentage of people who are either nominally still underwater on their house or technically underwater - meaning they don't have enough equity to cover the cost of selling, new down payment and moving.  I review that in Part 1.  I didn't put the number in there because a lot of people would not believe it, but Mark Hanson - who's work is close to impeccable - has come up with up to 66% of all current mortgaged homeowners are zombified - i.e. underwater + technically underwater.

All the evidence I look at - most of which does not make it into the media  - is telling me that the housing market is now set up for a serious decline.  In Part 2,  I review new home sales and show how the numbers are overstated and why new homes sales are about to hit the skids.  Please take the time read it, especially if you have been duped into thinking that housing is "cheap" right now:   The Coming Housing Crash Part 2

The insiders know everything I've outlined in Parts 1 and 2.  That's why they are now heavily promoting the housing "recovery" and why - per Hanson's quote above - they're now trying to shove buyers into ARMs to make sales happen.  Sound familiar?  It sure does to anyone reading this who got foreclosed out of a home with an ARM mortgage in the last 5 years.  Just for the record, KB Homes reported their numbers yesterday, reported a loss and also reported a 27% cancellation rate on contracts.  You'll see why that's relevant when you read my analysis.

Hopefully I'll get Part 3 written and published by the end of next week.  Have a great weekend.


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  2. Bingo. That's why I approached Dave and Don in 2006 to switch gears. I owned my own mortgage brokerage at the time and knew the banks were toast. Precious Metals Opportunity Fund LLC was launched in 2008 :) The characteristics of this recent decline, from all facets, are remarkably similar to that of 2008. The fund performed favorably the 4th quarter of 2008, 2009, and 2010 and needless to say we are very excited for the 2nd half of 2013, 2014, and 2015.

  3. Michael JacksonFriday, 28 June, 2013

    Thank You for all the articles that you have posted, Dave. Nobody writes like you do and the only thing that comes to mind is that you do "Intelligent Writing". I enjoy the detailed analysis with constant facts and figures and links and data to back it up. You are so right on. I plan on reading this when I get the time.

  4. Francine McKenna On Auditing Abuses (video)

    In the second half, Max talks to Francine McKenna of about the Bernie Madoff of munis and the cooked bailout books at Anglo-Irish bank.

  5. Are Syria and Pakistan Pieces of the Puzzle for a Mega Gas Pipeline to China?

    If the Iran-Iraq-Syria Pipeline and Iran-Pakistan Pipeline are connected and end up supplying China, it will amount to a major blow against the primacy of the United States.

    -Sicilian Gold

  6. Fixers Indicated That Hillary Was a Key Player in the Marc Rich Pardon Deal
    The Clintons and the Rich Women

    President-in-waiting Hillary Clinton has never addressed her role in the midnight pardon of billionaire fugitive Marc Rich, who died this week. In fact, she’s rarely been asked her opinion on the free pass given to one of the world’s most wanted fugitives, a man who violated embargoes against Iran and South Africa and fled the country rather than face trial in what was billed as “the biggest tax evasion case in history.” The senator has variously said that she was “unaware” of the decision and “surprised” by it. When pressed, she merely cackles.

    Even though 300 pages of core documents relating to the pardon decision remain under seal at the Clinton Library, a review of the available record tells a much different story. In fact, the Rich legal team viewed Hillary as a secret weapon, and as one door after another closed on their search for a pardon they focused more and more on invoking what Rich lawyer Robert Fink called the “HRC option.”

    Who is Marc Rich? And why did he need a presidential pardon?

    “He bought Swiss loyalty,” says Shawn Tulley, a financial crimes reporter for Fortune magazine, who covered the Rich case. “He really put out the charm and the money.”

    In order to buy alumina from the new leftist government of Jamaica for less than half the market price, Rich wired $50 million to Jamaican President Michael Manley in an hour of acute distress for the embattled ruler.(WHAT A TRADE)

    Even as he neared the top of the FBI’s Ten Most Wanted list, Rich also didn’t see any reason to abandon his operations in the United States. In fact, his hand is seen orchestrating one of the most savage crackdowns on organized labor in recent decades. In 1989, Rich secretly acquired the controlling interest in a West Virginia-based company called Ravenswood Aluminum. Ravenswood was embroiled in a tumultuous battle between management and workers at the plant when in 1990, under Rich’s long-distance orders, the company tried to bust the union.

    Meanwhile, back in Lucerne, Rich was beginning to cultivate the Israeli government. He established the Rich Foundation in Tel Aviv, which would distribute more than $100 million to Israeli causes over the next decade. To oversee the foundation, Rich selected a former high-ranking Mossad official named Avner Azulay, whose ties to the intelligence agency probably never totally evaporated. Azulay was a useful conduit to Israel’s political elite. He was close to Yitzak Rabin, Ehud Barak, Shimon Peres and Ehud Olmert. A decade later, Azulay would play a key role in securing Rich’s pardon from the Clintons.

  7. Dave,
    I'm a big fan of the King World News interviews, but some of the stories and analysis the guests tell confuse me.

    For example, listening to Andrew McGuire, he seems to be to be telling two or three different stories.

    The sovereign Asian banks are buying physical gold at artificially low prices created by the Fed and it's proxy’s manipulation of the paper gold market.

    The reason for this manipulation is the Fed needs to mask the strength of gold to maintain the public’s confidence in its money printing policies.

    The Fed “wins” in that it succeeds in lowering the price temporarily, but Asian banks “win” much bigger, as they become strong handed owners of discount priced physical gold.

    My question is, how do the JPMs/bullion banks “win” in the long term, if their scheme sends tons and tons of phys gold to Asia?

    In a manipulated stock market, they could lower the shares, forcing the sales, and then buy them back in the very same market. But gold is a phys and paper market. It is far from certain that their will be enough physical gold put back on the market to allow the
    Bullion banks to restock sufficiently.

    What is the rational end game for the bullion banks? At some point they need to get back net long, no? From what I read, they don’t lose very often, so I assuming they have rabbit in a hat somewhere.


    1. Good question. My first response is for you to read Jesse's Cafe Americain post last week in which he outlines how part of the motive to smash the metals was to force-drain GLD and use that gold to help deliver back some of the gold Germany wants back. His site is linked on the lower right side of my blog if you've never been there.

      He also discusses a possible to scheme to help recapitalize the banks like JPM by driving gold lower, let them cover shorts and accumulate physical, and then with the inevitable revaluation comes to back currencies with gold, the banks will effectively be recapitalized with high-priced gold. This is what FDR did in 1933, although it was done primarily to make the Treasury's gold worth a lot more and "shore-up" the backing of the dollar.

      We have to assume that when the inevitable comes, the big banks like JPM will positioned to fully benefit. I think GLD and Comex gold is being used to alleviated the paper short out there (i.e. Asia plus wealthy European families who want their gold from JPM et al) and for the purpose I just laid out.

  8. "Last week (May 29, 2013), the Republican majority in the House of Representatives passed H.R. 1911, the Smarter Solutions for Students Act.

    Unfortunately, it’s neither smart, nor a solution.

    The legislation pegs all Stafford Direct Student Loan rates (subsidized and unsubsidized) to the 10-year Treasury note, adjusted annually, plus 2.5% to cover administrative costs. Borrowers who qualify for subsidized loans would pay no interest while they are still in school and all loans have an 8.5% lifetime interest rate cap. (PLUS and parent loans would be similarly indexed, plus 4.5%)."

    I wonder how this is going to play out, pegging student loans to 10-year Treasury Bills. If those bills go to zero, does that mean the student loans are written off the books as "paid"?

  9. Michael JacksonSunday, 30 June, 2013

    SINGAPORE: Singapore on Friday censured 20 banks, including top global lenders, over attempts to manipulate local benchmark rates -- part of a widening rate-rigging scandal being investigated by financial regulators worldwide.

    The Monetary Authority of Singapore (MAS) said a yearlong review found that 20 banks -- including Bank of America, JP Morgan Chase and Standard Chartered -- had insufficient internal controls and risk management which allowed traders to attempt manipulation.

    Singapore is a global financial and wealth management centre that houses the regional offices of the world's top financial institutions.

    MAS, the city-state's central bank, said 133 traders from these banks were found "to have engaged in several attempts to inappropriately influence the benchmarks".

    Three-quarters of these traders have resigned or been fired, while the rest face disciplinary actions including loss of bonuses and demotion.

    The MAS crackdown is the latest in a global campaign by financial regulators to curb malpractices in the setting of benchmark rates, which has resulted in banks such as Royal Bank of Scotland, UBS and Barclays paying fines worth millions of dollars.

    MAS ordered 19 of the banks to set aside deposits ranging from Sg$100 million ($80 million) to Sg$1.2 billion for one year.

    ING Bank N.V, UBS AG and the Royal Bank of Scotland had the highest deposit requirements due to the "severity of attempts" by their traders to influence the rates.

    Three of Singapore's homegrown banks were also censured, with Oversea-Chinese Banking Corp asked to set aside up to Sg$800 million while DBS and United Overseas Bank were told to put aside up to Sg$600 million each.

    "While there is no conclusive finding that... benchmarks were successfully manipulated, the traders' conduct reflected a lack of professional ethics," MAS said."