Category: Housing
Update on the 2nd wave of mortgage foreclosures.
Here is an interesting article about the coming wave of defaults in the residential mortgage market. Basically they are saying that the next wave that was to come later this year and next is upon us because of negative equity rules pushing the reset date up.
The Second Wave is Already Upon Us
View PostThe coming second wave…
For those who believe the economic crisis is over, I have a reality check here.
- Unemployment is above 17% according to government figures (see U6, not the touted U3 number) and nearly 22% if it were calculated using methodology used before 1994. Source Shadow Stats. Yes unemployment is generally a lagging indicator, however we are not in a normal business cycle here. This is a deleveraging cycle, and the two are very different.
- Social Security is due to go into the red in 2010 (meaning it will contribute to budget deficits, not lower them). Source “Gary North/Lew Rockwell.
- Commercial loan losses are just beginning to be felt in the financial sector. Source: Seeking Alpha, Wall St. Journal.
- Christmas sales are running under last year’s dismal numbers. The consumer (70% of GDP) is tapped out and pulling in the horns as they stave off personal bankruptcy and credit card default. Source: Gallup.
- Dubai’s debt default (technically anyhow it was a default) shows continued stress in the system.
- Then, there is this chart.
We are moving headlong into the next wave of mortgage resets. It took a full year into the first wave before the crisis hit the banks. So far, interest rates are low and the resets are hurting but not devastating. This chart is a major reason that the Fed will keep rates low for at least another year. At least they will try. Contrary to popular opinion, the bond market controls mortgage rates, not the Fed. What happens if the dollar continues to slide (it will) and the bond market demands higher rates for holding US treasuries (they will)? You’ve got it. Mortgage crisis II, only this time from an economic baseline much lower and more fragile than it was during the first wave.
If the economy were truly on the mend, the Fed would be talking about raising rates and a real exit strategy for all the liquidity they have pumped into the system. Remember when we were told by the Fed that the taxpayer would make a profit on the Fed buying these assets and selling them back to the banks at a profit? Their exit strategy should be to sell those assets back to the banks and get them off the Fed’s books, in turn receiving back the cash they lent out. That is how money is drained from the system.
However, recently they announced their “exit strategy” is to perform a reverse repo. What this means is that they will sell their toxic assets for cash, thus “draining” that cash from the banking system. But wait. That’s not all. The reverse repo means they also agree to buy that asset back at a future date for more than they paid for it. Say again? Source: Financial Times
Yep. That’s right. This is a shell game combined with a game of hot potato. Follow the ‘taters.
1) Toxic assets (the ‘taters) are bought by the Fed for cash in late 2008 to stave off a banking system collapse.
2) Those assets are held on Fed’s books while banks supposedly repair their balance sheets.
3) Rather than the banks buying the ‘taters back at par or greater, making a profit for the taxpayer (who believed that?), they are being re-sold by the Fed back to the banks with an agreement for the Fed to buy them back later at a higher price, thus making a profit for the banks, and sticking the taxpayer with the ‘tatters once again.
Sick isn’t it. If anyone thinks this financial crisis is over, they are not watching what the Fed is doing. The toxic assets they bought are more toxic now than they were a year ago. They will never return to a state of health and at some point the ‘taters will have to be dealt with. IF this game can buy the Fed more time, then that is all it will buy them. There is no way out of this bankrupt mess. But the time bought will allow them to concoct a plan to further enrich the banking system while putting into place the follow up for whatever is left of our national currency.
Obama declared a few weeks ago that there is risk of a double dip recession. Also, the Federal Reserve has recently began to increase the Fed’s monetary base further, (despite their jawboning about an “exit strategy” – see above) following a pause following last fall and winter’s unprecedented doubling of the monetary base. At the same time, they are saying that substantial downside risks remain and interest rates are going to be held low for a considerable period. Why? The answers are above. We are moving headlong into the next financial crisis and this time it will include not just the financial markets, but the bond and currency markets as well. Gold’s rise to well over $1,000/oz is telling us the transition from a credit crisis to a currency crisis is well under way.
Do not be fooled. Be prepared. God, gold, grub and guns. I never thought I’d post that, but that’s what I see.
View PostHousing resets.
The next shoe is about to drop.
There was a one year lag between when the sub prime resets began and it effected our financial system. Here comes wave 2…
Change everywhere
There has been a great deal going on behind the scenes within this ministry and my lack of posting is not be indicative of what is happening here. I am posting an audio update about 40 minutes in length. This will likely become a more regular event as the continuing refinement of the vision of this ministry is put into practice.
Don’t believe it
The recession is over! That is what is all over the news now. Don’t believe it. I continue to see the envelope pushed out further when it comes to the divergence between economic reality and economic spin.
This is no surprise however. In 1930, there was a roughly 50% rise in the stock market from its crash bottom before it declined into its final lows. We are experiencing that same phenomenon today. It is human nature not to want to face reality, especially if that reality means hard times in one form or another. Thus, anything that may indicate that reality won’t have to be faced will be embraced and celebrated. And the ones responsible for creating the problems will do everything they can to put your focus on the good. They certainly don’t want you focused on what they did to bring this all about.
The bond market is on the verge of a multi-decade trend change. It is fighting that trend change with all its worth. However it will fail, and soon. When it does. When it breaks a nearly 30 year trend line, the denial over where our economy is headed will no longer be avoidable. Because the trend is for increasing interest rates, the spin will be that the trend change is due to a strengthening economy. Don’t believe it. This trend change is for one reason only. US paper money is being shunned by the world. It’s that simple. Yet the implications of this are far reaching and profound.
Rising rates at a time when we will be experiencing trillion dollar annual federal budget deficits for the next decade (by the CBO’s own forecast) is in itself enough to keep a lid on any economic growth for that entire period. Add to that, $2 trillion in global taxes due to cap-and-trade energy legislation, and you just turned stagnation into a decade long recession. Add to that $1 trillion (assuming they can trim it do that) in new health care spending, and you just turned a decade long recession into a decade moderate recession.
But we’re not finished. Add to that $70 trillion in unfunded Medicaid and medicare liabilities and you just turned it into a decade long depression. I wish that were all. Add to that energy prices that will increase by a minimum of 50% (and likely much, much higher) and you now have a deep depression. Then throw in a continued housing debacle, commercial real estate collapse, the majority of states becoming insolvent, political backlash for reckless government spending and bank bailouts.
It is becoming more and more obvious for those who have eyes to see that what happened during the crisis window from September 08 through March 09 was a takeover of the Federal government by the banking system. First of all, 10s of billions of dollars in bonuses are being paid out from the banks that put the next 4 generations of Americans in debt because of their needing to be bailed out. Goldman Sacs leads the list. The CEO has the audacity to send out a memo asking his employees to refrain from buying big ticket items and flaunting their wealth in the face of the public that is trying to put food on their table.
Let’s keep going… If you take some time to research the cap-and-trade legislation, you will see that the big banks stand to make hundreds of billions in profits from trading a new fiat currency – that being carbon credits. As they circulate these things back and forth, a new market is already developing similar to the derivatives market that had a great deal to do with our current implosion. This new currency will suck money out of the global economy and into its vortex of profit for the big banks. Health care legislation has its own place at the public trough. Who do you think will finance the bureaucracy that will oversee the takeover of 1/7 of the U.S. economy?
Even though the American people are slowly waking up and saying “enough”, the politicians continue forward with this agenda. With all of this happening, what you have is a recipe for a very unsettled decade ahead of us – to say the least. And I have not mentioned anything about geopolitical events or a flu pandemic (real or contrived).
People, this nation is on the edge of a very, very important time in our history. The moral character of our nation is about to be tested beyond what it has been in a century. Leaders must arise to stand against the powerful forces that are stacked against “we the people.” The debate is ending as to if there is a desire by some very powerful interests who wish to destroy this nation in terms of it’s continuation as a representative republic governed by “we the people” and the rule of law. If you aren’t convinced of that, my book will be out in a few months and it will shed light on that fact.
No, the question now is, do those standing against the United States and our Constitution wish to make us a socialist state or a fascist regime. From my point of view it matters not. They must be stopped. And engaging them will have to be done during a time of extraordinarily difficult times. It will only be by God’s grace that we make it through this time without a major confrontation with the powers driving the direction today, and those who believe freedom is something worth fighting for. It’s coming people. It is undeniable. The only question is timing.
So when you hear the bell ringing saying “peace and safety” “all is clear” “spend and spend some more.” Don’t believe it. It could cost you much more than money.
Bernanke was wrong
This is the man who today says that the Fed should have more oversight of the banksters and the overall economy. He is the one saying today that the remaining problems are well contained. Do you believe it? Of course not.
Economic Recovery?
There is a lot going on currently around the world, and it sure appears as though the global economy is poised for recovery. Looks can be deceiving however. Believe me, I would much rather sound the “all clear” signal than give you the analysis that is forthcoming. However, reality does not afford me that luxury.
First of all, let me say – I was wrong. I have said for the past two weeks that I thought an important top was forming in the broader markets and that it was likely they would roll over soon. Technically, the markets were looking toppy with a rounded top forming. They broke out of that pattern Friday to the upside and are following through today. That means we are likely to get one more impulse leg upward. This is where a bit of euphoria sets in as those who were sitting on the sidelines jump in so as not to miss the next great run.
Sadly, the fundamentals still point to much lower stock prices in the future, and those who jump in here may get a ride to the 9000 area in the DOW, however this has all the earmarks of an exhaustion move which, when complete, will have the market set up for a rapid fall. If you still have positions in the broad market, get ready to unload them.
Why do I say this? During every great bear market, there are bounces that fool investors into thinking the bottom is in well before the fact. These occur when the primary downtrend slows, making people believe the worst is over. In the great bear market of 29”””” thru 34””””, there were several rallies of between 30 and 50%. This rally fits the bill perfectly.
But more important than historical examples is the fundamental shape of the economy. While there is great cheer leading surrounding some “improving” numbers, these numbers are not generally pointing to a turn around, but rather a slowing of the rate of descent. There is not a market, individual stock or economy that goes straight up or straight down. There is an ebb and flow, and when a counter trend move begins, it is human nature to simply call an intermediate counter move a trend change.
Our current economic situation is such that there is no practical way that a lasting trend change can occur. Here are some facts about the fundamental state of the economy. You tell me whether or not a lasting recovery can be mounted with these facts still in play.
First of all, the housing market debacle has been one of the main causes of our economic woes. While housing sales were up last month by 3.2%, that was largely driven by historically low mortgage rates, courtesy of the Fed”s quantitative easing policy. There are two major problems with that.
1) Interest rates are rising. The 10 year treasury notes, which mortgages are based upon, have broken out of a long down trend. This is simply because the government has to fund a few trillion in borrowing for all of our bailouts. Bond traders are realizing that the supply of bonds is going to outstrip demand at these rates, thus rates must rise to entice new demand. Either that, or the Fed will have to increase its QE, which is highly inflationary, which in turn will cause bond buyers to require higher yields. The bond market is in a no-win situation. Rates will rise and there is little that can be done to stop this trend. An economy in depression cannot begin to grow in the face of rising interest rates. Especially an economy still based on credit, which until we purge this system, will be the case for the US and most of the world.
2) Beginning next month, the mortgage market enters its next phase as option ARMs begin to reset. The first wave of ARM resets occurred during late 2007 and 2008. It in some respects triggered the current credit crisis. The next wave will last from 18 to 24 months, peaking sometime in 2010. These resets will push a large number of homeowners into much higher payments. Many of these people will not be able to qualify for new 30 year fixed mortgages, thus the supply of foreclosed homes will likely continue to rise. Again – the economy cannot recover until housing does, and housing has a long way to go before it will recover.
The second problem we have is that the auto industry is imploding. The disruption of the auto industry will have effects similar to the disruption that the housing industry caused. Auto manufacturing, parts distribution, repair, etc. etc. encompasses a large employment base. With the bankruptcy of Chrysler currently underway and GM possible within the next month or two, this industry will potentially shed 100’s of thousands of jobs. Another hit to housing and consumer spending. Add to that the fact that Chrysler is going into a government “managed” bankruptcy. Government intervention into this process causes all kinds of problems with business planning and investment. And American business is increasingly getting the signal that the government knows better how to handle business problems than the free market does. Few large capital expenditures will be made while these policies remain, thus this depression’s recovery will not be led by business spending. In fact, the number of bankruptcies filed will continue to rise, putting further pressure on unemployment figures.
Problem number three is that price inflation is making a return. Prices for food and energy are on the rise again. Each dollar spent on higher prices robs purchasing power that could go toward discretionary spending that would help the economy grow. In short, the price inflation tax is coming back.
Problem number five is that federal and state government’s baseline projections for economic production are falling short in a big way. First quarter GPD contracted at an annual rate of 6.1%. This was higher than predicted, which means tax revenues will be lower than anticipated. Projected deficits thus will be higher than projected even just a few months ago. This will lead to increased governmental borrowing, increased Fed QE, increased inflation, etc. etc. States are in even more dire straights as they cannot simply borrow money printed by the Fed. However, they still accomplish this through the Federal government as the Fed prints, the Fed government borrows and bails out the states. In short, the bailout machine that began last fall will continue unabated for the foreseeable future. There will be no sustainable economic recovery while the bailouts continue.
The sixth problem (are we getting tired of these yet?) is that the credit crunch is still alive and well. Banks, contrary to popular spin, are still hoarding cash. Lending standards are continuing to tighten.
Number seven is the fact that truck tonnage (a measure of goods and services moving around the country) continues to fall. This indicates a weakening, not a stabilizing economy.
I’ll wrap this up. We have bank stress tests that are not being released because of the problems they might cause the markets. We have the swine flu, which has moderated some, yet still poses a potential threat if it comes back this fall stronger and more deadly than it is now (ala the 1918 pandemic). We have 90% of Pakistan controlled in some manner by the Taliban. If the government there topples, here comes another major expenditure as we find ourselves in a military exercise to try to prevent nuclear warheads from getting into Al Qaeda’s hands.
People, I am sorry to paint this picture for you, but you must know that the monetary system that has enabled all of this chaos continues to be used to try to prop up the world economy. It is broken. It is, in my opinion, not able to be repaired. It will eventually be replaced by a new system, be it another fiat system or a new one backed in some way by precious metals and possibly some oil component.
China made a significant announcement, in that it increased its gold reserves by 70% from 2003 through 2007. What is important about their announcement is that they did not just name gold as an asset held, but one held as part of their monetary reserves. This means China has given gold its stamp of approval as real money, not just another commodity asset. The implications of this are potentially huge, as they tell the rest of the world that gold deserves a place in monetary policy. Furthermore, we do not know what they have done in the last year and a half. It is likely they have continued to accumulate gold and in fact their holdings are much more than they reported. That is how China plays the game. Slow and steady.
So enjoy this respite. Enjoy the time we have to continue to prepare for what is coming. We may have a summer of relative quiet, although I suspect the next tremors will be shaking the world economy before the fall frost comes. It is time to continue to prepare the ark. We are in for several years of economic hardship, and if the present policy of unabated bailouts and money printing continues, the years of hardship may turn into a decade or more.
Don’t be fooled. God will not be mocked. A man reaps what he sows. Our fields are not pleasing to God, and there is a great deal more at stake than just our economy. The heart and soul of this nation will be tested during this time period. Ten years from now, the United States will not be the nation it is today. It will be a member of the global socialist nation state or it will be the nation that re-establishes itself as the true beacon of freedom for the world. Neither outcome will be won without a fight. Prepare yourself today for the battle ahead.
Agenda – Grinding America Down (5 star!)
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