I have been trying to explain this in many ways, so now let me bring it down to my own 2+2 level. Let's say I am a worker in the U.S. and have been making $50,000 a year for several years. Back in the 90s I had a house I could afford and I was saving some money. I saved more than I spent on debt. I was in positive territory. Sure, I had a mortgage and credit cards but I was making my payments and keeping my head above water.
Now comes 2002 and forward. I am still making the same pay but my home seems to be going up in value and I am wanting something more than I have had in my life. So, due to the booming real estate market I have sold the old home for a nice profit and bought a nice new home for $500K, with next to nothing down. Not bad for a guy making $50K a year.
And now it is 2005 and my new home is still going up in value, so I take out a second mortgage to help pay the first and buy a car. This is great! And then, the bottom falls out in 2007.
Think about it. I now cannot afford to pay my mortgage, much less the second mortgage or the credit cards I have run up. Many people in my position are losing their jobs. My house's value is now toast and I could not afford it to begin with.
Thank goodness, the end is in sight; we have fiscal stimulus from the government and the banks are being saved. Everything is honky dory. If only I had a job.
Repeat story several million fold and we are done.
Disclosures: None
Friday, July 3, 2009
Thursday, July 2, 2009
DEBT, DEBT AND MORE DEBT- GET USED TO NEGATIVE NEWS!!
It is almost comical that the headlines today are virtually the opposite of yesterday. I wish I had copied and pasted the Bloomberg headlines yesterday when the markets were up, but here they are right now:
•Asian Stocks Slump on U.S., Europe Unemployment, 7-11 Earnings; BHP Slides
•Yen, Dollar Advance Versus Euro as Stock Losses Increase Demand for Safety
•China's Zeng Peiyan Urges More Supervision of Reserve-Currency Countries
•Treasury Said to Start Distressed-Debt Program With $20 Billion of Funds
•Australia Facing `Full Brunt' of Global Recession as Exports, Lending Drop
•Lehman Minibond Offer Made by Hong Kong Banks After Outcry, Sing Tao Says
•Mukherjee May Increase Spending on the Poor in Indian Government's Budget
•Obama Calls Jobs Data `Sobering News,' Says More Time Needed for Recovery
Not exactly positive. Yet I have to say it is exactly the opposite of the way the headlines read just yesterday. Oh what one unexpectedly negative jobs report can do. Don't ask me if it was unexpected by me. The occassional positive news is what has me off guard.
Seriously, until our debt load decreases drastically, on an individual, government and corporate level, I see no real recovery in place. And our debt load right now could take a decade or more - optimistically - to get back to normal, i.e. sustainable. I am amazed at how everyone seems to be willing to ignore our still record debt levels. HELLO!! This bubble was built on debt. With unemployment obviously on the rise how in the hell is debt at any level (as a percent of GDP) coming down. Sure government stimulus spending can counter it a bit, which explains most the positive headlines the past few months, but at the end of the day we still have to address and reduce the debt. And I might add the government stimulus is adding to our debt, not reducing it. Whether you like it or not, reducing debt will be very a long slow process despite what the government does. I personally do not see any sustained economic rebound until the debt levels are seriously reduced. Debt spending by the government could cause temporary rebounds up to a year or two but we will, IMO, slip right back, in no small part due to government debt not effective in replacing personal or corporate debt - it is still debt. You have to address the fundamentals and we are not.
The Unemployment Surprise
I highly, highly recommend going to the Calculate Risk link below. It has a picture of an office of the National Assocition of Home Builders in D.C. trying to sublease some of their space. Telling, very telling. But the real significance of the post is that unemployment is now the second worst since WWII. And the link has numerous significant links on unemployment, bank failures (apparently there were 7 last week and not the 5 I reported), personal bankruptcy filings up 40% YOY, and other not so positive data. Get used to it. I have to say, I suspect the rate of bank failures will be picking up significantly as this year progresses.
http://www.calculatedriskblog.com/2009/07/another-involuntary-landlord-and.html
Government 125% FHFA Refinancing into Trouble
Undoubtedly the legislators thought the FHFA refinancing of up to 125% LTV was a good idea to help homeowners in trouble out. And undoubtedly it was pushed by some lobbiest or politician backed by some banks. As it turns out, in many instances this program helps the banks and screws the homeowners. For example, many in California may be trading a non-recourse loan (i.e. you can walk away and they cannot come after you) for a recourse loan and the banks make out quite well. Not exactly a nice deal for a homeowner obviously under water. Perhaps jingle mail is the better alternative to the government's latest plan. I want to know who sponsored this crap. They should be voted out of office.
http://www.nakedcapitalism.com/2009/07/is-new-affordable-fhfa-loan-program.html
http://www.nakedcapitalism.com/2009/07/freddie-fannie-to-provide-125-ltv.html
This is not humorous. There are people who will unwittingly use this program and screw themselves. They will tie their lives to homes that could take a decade or more to recover in price. And this is what the government considers to be help for mortgage holders. This is really getting me upset. The government is not only mortgaging my children's future through all the stimulus, TARP and other alphabet soup programs but now it is screwing us with programs that mask themselves as benefiting those under water. We need some outrage here!!! Let me repeat, the government is selling our childrens' and grandchildrens' future (SIGNIFICANTLY) and it is doing nothing to cure the problem in the long run. Again, I am outraged!!! Come on people, get with the program and see what is happening. I am seriously concerned on the future for my children. Are you?
Disclosures: None.
•Asian Stocks Slump on U.S., Europe Unemployment, 7-11 Earnings; BHP Slides
•Yen, Dollar Advance Versus Euro as Stock Losses Increase Demand for Safety
•China's Zeng Peiyan Urges More Supervision of Reserve-Currency Countries
•Treasury Said to Start Distressed-Debt Program With $20 Billion of Funds
•Australia Facing `Full Brunt' of Global Recession as Exports, Lending Drop
•Lehman Minibond Offer Made by Hong Kong Banks After Outcry, Sing Tao Says
•Mukherjee May Increase Spending on the Poor in Indian Government's Budget
•Obama Calls Jobs Data `Sobering News,' Says More Time Needed for Recovery
Not exactly positive. Yet I have to say it is exactly the opposite of the way the headlines read just yesterday. Oh what one unexpectedly negative jobs report can do. Don't ask me if it was unexpected by me. The occassional positive news is what has me off guard.
Seriously, until our debt load decreases drastically, on an individual, government and corporate level, I see no real recovery in place. And our debt load right now could take a decade or more - optimistically - to get back to normal, i.e. sustainable. I am amazed at how everyone seems to be willing to ignore our still record debt levels. HELLO!! This bubble was built on debt. With unemployment obviously on the rise how in the hell is debt at any level (as a percent of GDP) coming down. Sure government stimulus spending can counter it a bit, which explains most the positive headlines the past few months, but at the end of the day we still have to address and reduce the debt. And I might add the government stimulus is adding to our debt, not reducing it. Whether you like it or not, reducing debt will be very a long slow process despite what the government does. I personally do not see any sustained economic rebound until the debt levels are seriously reduced. Debt spending by the government could cause temporary rebounds up to a year or two but we will, IMO, slip right back, in no small part due to government debt not effective in replacing personal or corporate debt - it is still debt. You have to address the fundamentals and we are not.
The Unemployment Surprise
I highly, highly recommend going to the Calculate Risk link below. It has a picture of an office of the National Assocition of Home Builders in D.C. trying to sublease some of their space. Telling, very telling. But the real significance of the post is that unemployment is now the second worst since WWII. And the link has numerous significant links on unemployment, bank failures (apparently there were 7 last week and not the 5 I reported), personal bankruptcy filings up 40% YOY, and other not so positive data. Get used to it. I have to say, I suspect the rate of bank failures will be picking up significantly as this year progresses.
http://www.calculatedriskblog.com/2009/07/another-involuntary-landlord-and.html
Government 125% FHFA Refinancing into Trouble
Undoubtedly the legislators thought the FHFA refinancing of up to 125% LTV was a good idea to help homeowners in trouble out. And undoubtedly it was pushed by some lobbiest or politician backed by some banks. As it turns out, in many instances this program helps the banks and screws the homeowners. For example, many in California may be trading a non-recourse loan (i.e. you can walk away and they cannot come after you) for a recourse loan and the banks make out quite well. Not exactly a nice deal for a homeowner obviously under water. Perhaps jingle mail is the better alternative to the government's latest plan. I want to know who sponsored this crap. They should be voted out of office.
http://www.nakedcapitalism.com/2009/07/is-new-affordable-fhfa-loan-program.html
http://www.nakedcapitalism.com/2009/07/freddie-fannie-to-provide-125-ltv.html
This is not humorous. There are people who will unwittingly use this program and screw themselves. They will tie their lives to homes that could take a decade or more to recover in price. And this is what the government considers to be help for mortgage holders. This is really getting me upset. The government is not only mortgaging my children's future through all the stimulus, TARP and other alphabet soup programs but now it is screwing us with programs that mask themselves as benefiting those under water. We need some outrage here!!! Let me repeat, the government is selling our childrens' and grandchildrens' future (SIGNIFICANTLY) and it is doing nothing to cure the problem in the long run. Again, I am outraged!!! Come on people, get with the program and see what is happening. I am seriously concerned on the future for my children. Are you?
Disclosures: None.
Wednesday, July 1, 2009
CRE and Autos
Let me start with car manufacturers. Though I think this economy - due to excessive debt levels - will be in a funk for years to come, at some point people need to buy a new car. There is just so long keeping the old one where maintenance is not too expensive before you have to move up and there are just so many late model used cars out there. A local dealership is advertising for late model used autos, even if you are not buying a new car from them, so I have to assume folks with older vehicles that are too expensive to maintain are looking for more recent vintage used vehicles because they cannot afford new ones. This will push buyers up the list eventually to buying new vehicles. There are an increasingly small number of used cars to go around.
Think about it, as Calculated Risk points out, we have twice the drivers we did in 1967 but sales of new autos are the same or less than then. Obviously this cannot continue for long.
http://www.calculatedriskblog.com/2009/07/graphs-auto-sales-in-june.html
Now I have to add that Chrysler and GM filing bankruptcy is complicating the picture a bit in terms of investment. One might think the survivors are better off but Chrysler and GM shedding some obligations in bankruptcy might make them much more competitive. Either way, a lot of their suppliers - which supply (for the most part) multiple manufacturers - will make this quite complicated to figure out.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYTT6_1EB3Yw
Nonetheless, an area to watch. Certainly there will be some winners here so it may be wise to spread the investment across the board. I have no investments here at the moment but am giving it serious thought.
CRE is Next
Commercial real estate (CRE) values - and mortgage defaults - tend to lag the residential market by up to a year. I mentioned the other day that the U.S. has twice the retail space of the closest competing country, well it appears on hotel space we are even worse. Go figure!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYTT6_1EB3Yw
The CRE defaults, which are very significant, will likely not peak until next year. And as the linked post above notes, CRE has a long way to bottom. Not a good picture.
Disclosures: None
Think about it, as Calculated Risk points out, we have twice the drivers we did in 1967 but sales of new autos are the same or less than then. Obviously this cannot continue for long.
http://www.calculatedriskblog.com/2009/07/graphs-auto-sales-in-june.html
Now I have to add that Chrysler and GM filing bankruptcy is complicating the picture a bit in terms of investment. One might think the survivors are better off but Chrysler and GM shedding some obligations in bankruptcy might make them much more competitive. Either way, a lot of their suppliers - which supply (for the most part) multiple manufacturers - will make this quite complicated to figure out.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYTT6_1EB3Yw
Nonetheless, an area to watch. Certainly there will be some winners here so it may be wise to spread the investment across the board. I have no investments here at the moment but am giving it serious thought.
CRE is Next
Commercial real estate (CRE) values - and mortgage defaults - tend to lag the residential market by up to a year. I mentioned the other day that the U.S. has twice the retail space of the closest competing country, well it appears on hotel space we are even worse. Go figure!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYTT6_1EB3Yw
The CRE defaults, which are very significant, will likely not peak until next year. And as the linked post above notes, CRE has a long way to bottom. Not a good picture.
Disclosures: None
Tuesday, June 30, 2009
Buying the Farm
Let me begin with a full disclosure. I own a few hundred dollars worth of Valcent Technologies stock (it used to be much more valuable). With that out of the way, let's talk about buying the farm.
With a lot of Americans (and non-Americans) out of a job, consider farming. The world population is still growing at a realtively good clip, farm land has not been expanding, farmers (at least in the U.S.) seem to be retiring and in short supply, and in the U.S. it promises to be a key export for years to come, especially as our dollar gets trashed. Just a thought.
Now I say this not because I have a few hundred in Valcent stock. I originally bought it because it is into using algae as an alternative fuel stock - something I still believe is a leading contender for the future. And Valcent has a promising, yet still in development, technology for growing algae. Admittedly, the technology seemed more promising when gas was $4 a gallon, but we will return there eventually.
What excites me more about the stock now is their verticle growing system. It is expensive on a square foot basis, but if their claims on using significantly less water, having no nutrient runoff to the oceans and growth rates prove accurate, this is an excellent product. I happen to be in New Hampshire where we got six inches of rain in June but in places like Australia where they have drought conditions, a system that uses a fifth of the water is vital. Again, I own a few hundred dollars of the stock, so I do stand to make some (not) significant dollars if the stock goes up. It would have to go up many fold to get back to where I bought it on the algae bet (which could still come through with Obama). You never know, but one thing is for sure (beyond taxes and death) - people need to eat!!
By the way, here is a nice piece by Graham Summers at Seeking Alpha providing a good bit more detail on the food and farming issues we face. Judging by the comments, it is quite a contentious issue, but again, we all have to eat. Who can contend with that?
http://seekingalpha.com/article/144675-the-real-crisis-is-food-beginning-of-the-bull-for-agriculture?source=email
Tough week so I will say goodnight with this.
With a lot of Americans (and non-Americans) out of a job, consider farming. The world population is still growing at a realtively good clip, farm land has not been expanding, farmers (at least in the U.S.) seem to be retiring and in short supply, and in the U.S. it promises to be a key export for years to come, especially as our dollar gets trashed. Just a thought.
Now I say this not because I have a few hundred in Valcent stock. I originally bought it because it is into using algae as an alternative fuel stock - something I still believe is a leading contender for the future. And Valcent has a promising, yet still in development, technology for growing algae. Admittedly, the technology seemed more promising when gas was $4 a gallon, but we will return there eventually.
What excites me more about the stock now is their verticle growing system. It is expensive on a square foot basis, but if their claims on using significantly less water, having no nutrient runoff to the oceans and growth rates prove accurate, this is an excellent product. I happen to be in New Hampshire where we got six inches of rain in June but in places like Australia where they have drought conditions, a system that uses a fifth of the water is vital. Again, I own a few hundred dollars of the stock, so I do stand to make some (not) significant dollars if the stock goes up. It would have to go up many fold to get back to where I bought it on the algae bet (which could still come through with Obama). You never know, but one thing is for sure (beyond taxes and death) - people need to eat!!
By the way, here is a nice piece by Graham Summers at Seeking Alpha providing a good bit more detail on the food and farming issues we face. Judging by the comments, it is quite a contentious issue, but again, we all have to eat. Who can contend with that?
http://seekingalpha.com/article/144675-the-real-crisis-is-food-beginning-of-the-bull-for-agriculture?source=email
Tough week so I will say goodnight with this.
Monday, June 29, 2009
China on the Edge??!!
My daughter and son are from China, so I am not one to throw dirt there readily. I am not going to hold off if I see problems but I am not a China basher.
Let me begin by noting a bit from the two weeks I spent in China last month. I was there in a few major cities, including Beijing, in 2005. We at the time considered the national bird to be the construction crain. Our first trip, in 2003, had craines in Beijing and other cities in every direction and active. Beijing especially was very active. This past time I saw some craines but none in motion, none actually building anything.
As an aside I have to note the the safety netting and scaffolding on most skyscrappers in China seems to be primarily built with bamboo. Yes, 50-60 story builldings were being built with bamboo scaffolding outside. Amazing! But now let us return to matters financial.
China Banks are in - perhaps - a smidge of trouble. Just a bit.
It seems the government in China has been leaning on banks there to do some improvident lending that could compare to U.S. stimulus spending. That is not the most disturbing part of this link. The most disturbing part is that it shows China to be on the edge and if China falls the world could be in for a major tumble. China has a host of issues to deal with, but as this article notes, its economy is not on the rebound it appears to be showing. And if you are into commodities, I recommend you read this carefully. The commodities rebound may be on its last leg if this is correct.
http://www.nakedcapitalism.com/2009/06/chinese-banks-accident-waiting-to.html
Madoff did not Make Off
Well it appears Madoff has not "made off" with the money. He just got 150 years in prison. Unless there are some significant advances in stem cell research or some other cutting-edge medical area, I am pretty sure that is a death sentence. Hey, he kept his Ponzi scheme going for a very long time. The question that courts will be working out for a while is the extent to which his wife and sons lose their fortunes as ill-gotten gains.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHSYu2UPYrfo
Enough Bad News
But enough of the bad news. Stocks are up left and right. Asian stocks are in record territory.
http://www.bloomberg.com/apps/news?pid=20601087&sid=axAsfE6fJ.OM
And everything is coming up roses. Yep, there we go. But wait a second, Japan's jobless rate just rose to a five year high. Now it is only 5.2% which is a bit over half the rate here, but it is still high for Japan. This seems inconsistent with consumer spending being up but when you stop and realize it is all government stimulus, you know why the numbers seem inconsistent. They are not. It is just a case of where the dollars come from. Stimulus dollars in Japan, like here, support economic stats but to me it is a false support. We are spending future tax dollars, incurring debt, to make a debt driven recession end. NOT!! All we can or will build is a new bubble.
Nonetheless, Japan industrial production is up big time, I must admit. Production climbed a whopping 5.9% from the month before. Try to ignore the YOY numbers - not so impressive. By the way, the chart in the linked article tells it all.
http://econompicdata.blogspot.com/2009/06/japanese-industrial-production-jumps.html
Hey, Don't Worry, Car Sales Should be Up!
Well at least up from record lows. Still off 25% from a year ago (a bad year in itself) but it seems to be improving a smidge. I guess it is time for me to go buy a car before all the deals disappear.
http://www.nakedcapitalism.com/2009/06/chinese-banks-accident-waiting-to.html
Disclosures: None
Let me begin by noting a bit from the two weeks I spent in China last month. I was there in a few major cities, including Beijing, in 2005. We at the time considered the national bird to be the construction crain. Our first trip, in 2003, had craines in Beijing and other cities in every direction and active. Beijing especially was very active. This past time I saw some craines but none in motion, none actually building anything.
As an aside I have to note the the safety netting and scaffolding on most skyscrappers in China seems to be primarily built with bamboo. Yes, 50-60 story builldings were being built with bamboo scaffolding outside. Amazing! But now let us return to matters financial.
China Banks are in - perhaps - a smidge of trouble. Just a bit.
It seems the government in China has been leaning on banks there to do some improvident lending that could compare to U.S. stimulus spending. That is not the most disturbing part of this link. The most disturbing part is that it shows China to be on the edge and if China falls the world could be in for a major tumble. China has a host of issues to deal with, but as this article notes, its economy is not on the rebound it appears to be showing. And if you are into commodities, I recommend you read this carefully. The commodities rebound may be on its last leg if this is correct.
http://www.nakedcapitalism.com/2009/06/chinese-banks-accident-waiting-to.html
Madoff did not Make Off
Well it appears Madoff has not "made off" with the money. He just got 150 years in prison. Unless there are some significant advances in stem cell research or some other cutting-edge medical area, I am pretty sure that is a death sentence. Hey, he kept his Ponzi scheme going for a very long time. The question that courts will be working out for a while is the extent to which his wife and sons lose their fortunes as ill-gotten gains.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHSYu2UPYrfo
Enough Bad News
But enough of the bad news. Stocks are up left and right. Asian stocks are in record territory.
http://www.bloomberg.com/apps/news?pid=20601087&sid=axAsfE6fJ.OM
And everything is coming up roses. Yep, there we go. But wait a second, Japan's jobless rate just rose to a five year high. Now it is only 5.2% which is a bit over half the rate here, but it is still high for Japan. This seems inconsistent with consumer spending being up but when you stop and realize it is all government stimulus, you know why the numbers seem inconsistent. They are not. It is just a case of where the dollars come from. Stimulus dollars in Japan, like here, support economic stats but to me it is a false support. We are spending future tax dollars, incurring debt, to make a debt driven recession end. NOT!! All we can or will build is a new bubble.
Nonetheless, Japan industrial production is up big time, I must admit. Production climbed a whopping 5.9% from the month before. Try to ignore the YOY numbers - not so impressive. By the way, the chart in the linked article tells it all.
http://econompicdata.blogspot.com/2009/06/japanese-industrial-production-jumps.html
Hey, Don't Worry, Car Sales Should be Up!
Well at least up from record lows. Still off 25% from a year ago (a bad year in itself) but it seems to be improving a smidge. I guess it is time for me to go buy a car before all the deals disappear.
http://www.nakedcapitalism.com/2009/06/chinese-banks-accident-waiting-to.html
Disclosures: None
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