Year end look forward for 2009

COMMENTARY

Holiday Greetings To All,

2008 is winding down and we will soon be starting 2009. Looks like a another bump in the road for the World Economy. However, there is opportunity for some of us, if we realize it won't be business as usual, rather, it will be a new deck and a new deal.

Projected Highlights to come for 2009

• Deflation: Phase Two hits with high unemployment (Looking for 10% plus by year end) and accelerated bankruptcies across the board while the CRB Cash Index continues to grind lower with a few keep-em-honest mini rallies through out 2009.

• Run Away Inflation: Sorry, Fed and World Central Banks will not be able to pull that one off to get everyone off the debt hook. Look at the velocity of money in circulation (or guess at it). All the de-leveraging taking place at the Consumer, Business, Money Center Banks, and Governmental levels are crushing the International Stimulus Package efforts, at least near term.

• Dollar begins to Strengthen: by 2Q as other countries an economies continue to wind down and catch up with the US slow down. Another words, dollar strengthens by default not necessarily by improving fundamentals.

• Gold: stays under 2008 highs (Previous highs were slightly over $1,000) and look for large cracks in prices developing in the numismatic coin market.

• Residential Real Estate: continues to slide down, no near term bottom in sight for 2009.
  
• Commercial Real Estate: Joins the party in a big way as businesses and leases fail leaving huge empty spaces. At first it will look like teeth are missing from a beautiful smile. Construction on some buildings will stop mid way as the excess capacity is drained from the system. Bids for the Commercial Bond paper will become scarce at any price.
  

• National Health Care: Comes to America not by choice but out of desperation. Look for a single payer National Health Care Program begin to emerge in 2009. Crushing business and individual costs along with rising uninsured numbers that are now above 40 mm plus will force the issue.

• Worker Collective Bargaining: will re-emerge again as workers desperately try to hang on to their jobs and not get run over by business interests. This will be a long and painful process for everyone.

• Tariffs: or defacto job protecting legislation (This could also take place through the creation of special business sector incentives) will begin to emerge with consequence regarding international trade. Look for trading partners to be doing similar actions.

• Civil Unrest: in the cities will flare up. The downturn will occur as an over leveraged citizenry becomes ugly as built in safety nets are unable to hold the numbers. Possible use of regular Army may be seen to assist crowd control efforts by using the cover of a military exercise or tagging it a monitoring and assist event for Homeland Security purposes.
  

• Legacy Leadership: will begin to disappear in both business and government. It will be done quietly but in the next couple of years all new faces will be up front.

• Nationalization of the Federal Reserve: I know, hard to believe. But it happen before in the 1940's and I believe it will happen again (Structural change which will divest the private interests and reconnect to the Public Sector under the Department of Treasury.) Their is precedent, and the while Ben and Greenie (Greenspan) should get an A for effort they clearly failed us in application - F. (This is my wild card call looking to happen in the next couple years as the economies slow recovery start to choke on huge public debt.)

• Govt Bankruptcies (light): at the Local, State, Federal and International levels. Look for the emergence of payment default holiday's to become more common as a useful tool to try and keep decaying infrastructure going.

• Business Bankruptcies: Consolidation will continue to occur as many business both large and small will slip under the water and disappear. High unemployment, falling real wages, and eroding family net worth (from declining Property and Retirement Programs) will continue to conspire to disrupt consumer purchasing power.

• Equity Markets World Wide: continue to grind down with a few brief rallies through out the year. Be careful in 2009 you don't get suck into a decaying market prematurely.

FYI - Some stocks took over 20 years to reach old 1929 prices while many never made it at all.

• Strategy: The old two step might be needed - - regarding the preservation of your principle which should be your main focus during a major world wide deflationary period. I am completing that strategy as we speak and will share the results with any who may be interested.

That's all from your Main Street Sidewalk economist for 2008. Your comments are welcome. I hope I am way off on this one versus what my cyclical charts seem to be indicating.

Happy, Healthy, and Safe Holiday Season,

James Monachino

Banks Show No Signs of Easing in Step With Fed’s Cuts

Banks Show No Signs of Easing in Step With Fed’s Cuts
Dec. 17 (Bloomberg) --By Liz Capo McCormick and Gavin Finch


HIGHLIGHTS

• Federal Reserve and Treasury: Credit Markets show no signs of ending the 18-month freeze, as evidenced by the unprecedented gap between what banks and the U.S. government pay to borrow money.
• TED SPREAD: Libor, that banks charge each other for three-month loans and Treasury bill rates is six times wider than before markets began to seize up in June 2007. Even though the so-called TED spread narrowed to 1.55 percentage points from 4.64 percentage points in October.
• Consumer Credit: fell $6.4 billion in August and $3.5 billion in October, making 2008 the first year with at least two declines since 1992, according to Fed data. August’s decline was the biggest in at least 65 years.
• Bond Sales: by companies rated below investment-grade fell 57 percent to $63.3 billion this year from 2007, according to data compiled by Bloomberg. The extra yield investors demand to own the debt instead of Treasuries rose to a record 21.4 percentage points yesterday from 1.32 percent 18 months ago.
• Personal Bankruptcies: rose 34 percent in the third quarter from the same period of 2007, according to the American Bankruptcy Institute in Alexandria, Virginia. Moody’s Investors Service predicted in November that corporate defaults in the U.S. will surge threefold to 11.4 percent in the next 12 months.
• 85 % of Domestic Banks: tightened lending standards on commercial and industrial loans to large and mid- size firms, the highest since the survey began in its current format in 1991, the Fed said in its latest quarterly Senior Loan Officer Survey conducted between Oct. 2 and Oct. 16.
• Finally: “There isn’t a community banker in America who doesn’t want to make good loans,” said James Mckillop, chief executive officer of the Independent Bankers’ Bank of Lake Mary, Florida, which provides loans to 350 community banks in Florida and Georgia. “But finding loans that they feel are going to be good is becoming more and more difficult.”

COMMENTS:

Federal Reserve cuts rates and the nightmare continues. It will be a number of years before we complete all the outstanding commitments that were made during more prosperous circumstances.

James Monachino

U.S. Economy: Employers Eliminate 533,000 Jobs, Most Since 1974

U.S. Economy: Employers Eliminate 533,000 Jobs, Most Since 1974 By Bob Willis and Rich Miller Dec. 5 (Bloomberg) --

HIGHLIGHTS

• Companies Slashed Payrolls: last month at the fastest pace in 34 years as the economy headed for its deepest and longest recession since World War II.
• Employers cut 533,000 Jobs: Unemployment rate rose to 6.7 percent, the highest level since 1993 with losses so far this year totally 1.91 million jobs.
• Nariman Behravesh: Chief Economist at IHS Global Insight, “It’s unbelievable,” he went on to say, “We’re well on our way to the worst recession of the postwar period.”
• Revisions for September and October: increased job losses by 199,000. The October figure was revised to 320,000 from the previous estimate of 240,000. November was the 11th consecutive drop in payrolls.
• Mark Zandi: Chief Economist at Moody's Economy.com,“Almost all businesses are in survival mode,” “Policy makers from the Federal Reserve to Congress and the new administration are going to have to be very aggressive.”

COMMENTS

Testing the Markets: Is it time to put your toe in the water? Great bargains everywhere. What's a Fat Cat to do? I see a toe lightly feathering a vat of acid. If you don't need ten toes dip in.

Global Disorder will find a New Paradigm:

* New Tax Structures - look for it coming to a country or continent near you.
* New Oversight - rules that will impact the way you do business.
* New Regulations- that will hopefully dampen the rip and tear capitalism that helped create our current global market decay.

* World Wide Tariffs - Look for the revival of tariffs or defacto tariffs that will begin to appear around the globe as job creation becomes number one.
* Oil Revenues Decline - look for world wide terrorist traffic to slow significantly. These campaigns our expensive and don't run on credit.

* Federal Reserve - Sorry Ben, looks like an A for effort and an F for application. The world economies are melting and the Fed's lack of critical oversight is in the middle of it.
* Nationalize the Federal Reserve: Time to make a change in personnel and structure. Reconnect our monetary system to the taxpayers not private international banking interests.

* Bailout Money: focus on rebuilding the real economy (middle class worker). This is hard pain staking work but will start to change the current downward momentum.
* National Health Care: Massive unemployment, crushing corporate health & retirement burdens, and rising premiums that are forcing the rolls to swell well beyond the 40mm number of uninsured USA citizens that swamp our emergency rooms and hospital balance sheets. This will force the creation of a national single payer health care program.

* Leadership: In a capitalistic environment you are not rewarded for failure. Look for legacy leadership to be cycled out in both Business and National Politics. It will be subtle but wide reaching by the end of Obama's four years term.

Conclusion
Folks, we are all on the merry go round and some of us can't get off while others are being thrown off into brick walls. The good news is we have the ability to rebuild a more effective economic and political order. Maybe not by choice but desperation. Fasten your seat belts, refocus your thinking to a forward mode, opportunity an action awaits the astute and patient individuals.


James Monachino

Consumer Prices in U.S. Decline 1%, Most on Record

Consumer Prices in U.S. Decline 1%, Most on Record (Update2)
By Bob Willis - - Nov. 19 (Bloomberg)

HIGHLIGHTS

The Cost of Living: in the U.S. fell by the most on record as fuel costs plummeted and retailers used discounts for cars and clothing to entice consumers hobbled by job losses and sinking home values.

• Consumer Prices Plunged: Down 1 percent last month, more than forecast and the most since records began in 1947, after being unchanged the prior month, the Labor Department said in Washington. Excluding food and energy, so-called core prices unexpectedly fell for the first time since 1982.
  
• David Resler, Chief economist at Nomura Securities International Inc: ``We are moving into an environment where prices are falling across the board,'' he said, in an interview with Bloomberg Television. ``That is going to continue. Deflation is spreading across the economy.''
• Housing Starts: fell 4.5 percent in October to an annual rate of 791,000, the lowest level since the Commerce Department began keeping the data in 1959.
• Price Rollbacks: Eduardo Castro-Wright,`Wal-Mart's U.S. stores chief, stated,`You'll see a lot of rollbacks,'' at a Morgan Stanley conference in New York. Rollbacks refer to price reductions the retailer scatters throughout grocery, pharmacy and other departments to spur sales.

COMMENTS

Deflation: is showing up in the numbers for the first time in decades. It is spreading and the remedies will be different than an inflationary recession. The growing number of bankruptcies seem to indicate to survivors change is in the air.

To Big to Fail: Is a fine line to walk and difficult to reward with taxpayers money. Where do you draw the line. From Banks, Insurance companies, Auto Makers, maybe we should ask , Who shouldn't we bail out? The list might be shorter.

Bargains: There will be plenty, but wait if you can. The pricing cycle is still in the first year of a multi year downturn. Preservation of capital and access to credit will continue to be critical during this World Wide Down turn. Your focus should be more on survival at the moment not opportunity. New rules and regulations yet to be developed will make it difficult for you to choose intelligently. Patients will be rewarded.

Jim

U.S. Unemployment Rate Climbs to 14-Year High of 6.5% (Update2)

U.S. Unemployment Rate Climbs to 14-Year High of 6.5% (Update2)

By Bob Willis and Rich Miller

HIGHLIGHTS

Nov. 7 (Bloomberg) --

The U.S. unemployment rate rose to the highest level since 1994.

• 
  
• 
  
• Jobless Rate Rose: to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington.
  
• Employers Fired: 240,000 workers after a loss of 284,000 in September, the biggest two-month slide since 2001.
• 25-Year High: The total number of unemployed Americans jumped to 10.08 million last month, the highest level in a quarter-century, today’s report showed.
  
• Nariman Behravesh, chief economist at IHS Global Insight: “We’re heading for a deep recession -- banish the word mild from your vocabulary -- it’s big, it’s bad and it’s broad-based,” said in Lexington, Massachusetts.
  
• Goldman’s Forecast: Goldman Sachs Group Inc. analysts downgraded their projections for the economy after today’s report, foreseeing the biggest contraction since 1982 in the fourth quarter. Goldman also projects that the unemployment rate will soar to 8.5 percent by the end of next year.
  
• Faltering Economy: and imploding financial markets helped push Obama ahead of Republican rival John McCain, a senator from Arizona, particularly in hard-fought states like Ohio and Florida where unemployment rates have jumped.

COMMENTS

Presidency: "It's the economy, stupid." prove again to be the winning theme for the the Democratic party. Time will tell how effective the new team will be. But there are no magic bullets to this Global Financial Bubble that has been building over the past 20 plus years. It will take a number of years to repair and rebuild the economy.

Bottom Up: Getting money and jobs into the hands of the middle and working class will be the challenge. Solutions that foster growth and opportunity at the grassroots level will help turn this economy around.

Paradigm Shift: Free market behavior will now be shifting to control and regulate. Let us hope that wise policies will be constructed and the pendulum will not swing to far over to the extreme of the other side.


Near Term: More of the same; higher unemployment along with lower stock market & International Commodity Prices. Why? because buying power and access to credit at the consumer level is continuing to drain out of the US and Global populations resulting in increasing bankruptcies. Cash will continue to be King. As has been said before in this blog, we are in a deflationary downturn. Meaning remedies to problems faced in the past will require a different strategy in order to archive success by both Government and Business.

James Monachino

Greenspan Concedes to `Flaw' in His Market Ideology

Greenspan Concedes to `Flaw' in His Market Ideology (Update2)

By Scott Lanman and Steve Matthews Oct. 23 (Bloomberg) --

Highlights:

Former Federal Reserve Chairman Alan Greenspan: said a ``once-in-a-century credit tsunami'' has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed. He stated I was ``partially'' wrong in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected. Forecasting is an inexact science.

Greenspan opposed increasing financial supervision: as Fed chairman from August 1987 to January 2006. Policy makers are now struggling to contain a financial crisis marked by record foreclosures, falling asset prices and losses tied to U.S. subprime mortgages.

``What went wrong": former chairman wondered, with global economic policies that had worked so effectively for nearly four decades?''Greenspan reiterated his ``shocked disbelief'' that financial companies failed to execute sufficient ``surveillance'' on their trading counterparties to prevent surging losses.

Greenspan Revised Recommendations: Firms that bundle loans into securities for sale should be required to keep part of those securities and other rules should address fraud and settlement of trades.


Commentary

Falling Giant: Alan Greenspan, was once considered the most powerful and well respected man in finance has now lived long enough to see it turn around. We cheered him on when he helped us and now sneer because he failed us.


New Deal Regulation: It appears we are on the verge of a paradigm shift in free market regulations and oversight. Stay tune for a litany of new laws and oversight after the new administration comes into power in 2009.



Jim

Freddie & Fannie Resurrection

COMMENTARY

Freddie & Fannie Resurrection

The Bailout ($$$ Trillion plus) is running wild. The danger is we have an administration who is writing the checks knowing that they won't be around to justify all the additional next generation taxes they are creating in the form of interest and principle payout.

One last hurrah for the Darwinian Capitalism, survival of the fittest - - Only the strongest and most influential corporations will dine for free at the taxpayers table. This is self selection in a manner that rewards privilege and resource.

How can this be? Upon selection, let's examine the new collection of Wallstreet retreads Treasury Secretary Paulson will chose to work with.

It will be interesting to see the teams that are chosen and if they had a past role they had in creating the original problem we are trying to solve. In additional, none of them work cheap. Their skills are worth millions of dollars in compensation so taxpayers pay again. No new regulation, rules, limits, or compensation caps, business as usual one more time.

Another Way ---

Since the American tax payer has all ready bailed out Freddie and Fannie I would like to suggest that Secretary of Treasurer Henry Paulson consider working more predominately through these two agencies.

A handful of executives got excessive compensation bonuses but the rest of the organization did not. For decades these organizations did what they were charactered to do. Adjust the mandate, monitor the compensation, and regulate their leverage and let them propose some programs.

Recommendation: Freddie and Fannie submit a joint draft detailing how they would mop up the targeted toxic mortgages along with additional suggests on how to stabilize the real estate market by Thanksgiving.

Why? Having worked with these two agencies in various capacities, I can tell you most of the employees don't have a rip and tear mentality often found on the Wallstreet.

In Addition:
* They have a corporate infrastructure in place to handle the size that will be necessary.
* They have the ability to drill down to the loan level and help stabilize the underlining problem of price erosion of real estate properties.
* They have the ability to quickly launch a series of new origination products that can mop up the toxic mortgages.
* They are a known an accepted International Organizations.
* Untied States Tax payer is the primary owner of these two GSA's and deserve to benefit of any profit, if there is one.

Finally, Regulation, Oversight, and Compensation controls can be monitored and adjusted to reflect fair value for all employees and participates.

Obviously there is more, but this project can work and within the confines of the existing financial platforms.

Jim

Congress Pushes for Changes to Paulson Bailout Plan (Update2)

By Laura Litvan and James Rowley

HIGHLIGHTS

Sept. 24 (Bloomberg) --

• Congressional leaders are weighing new ways: to revise a $700 billion Wall Street rescue plan after it became clear that U.S. Treasury Secretary Henry Paulson's proposal faces resistance from both Democrats and Republicans.
• House and Senate Democratic leaders: huddled late yesterday to consider new strategies, including the possibility of approving only a $150 billion initial installment for the government to purchase troubled assets from financial firms. Senator Charles Schumer of New York, the No. 3 Senate Democratic leader, said Paulson wouldn't have time to use the full $700 billion before the Bush administration left office on Jan. 20.
• House Republican leaders: told Paulson that his proposal is facing resistance in their party and invited him to speak to all Republicans at a closed-door meeting this morning, said Michael Steel, a spokesman for House Republican leader John Boehner.
• Bloomberg/Los Angeles Times poll: found that by a margin of 55 percent to 31 percent, Americans say it's not the government's responsibility to bail out private companies with taxpayer dollars, even if their collapse could damage the economy.
• Senate Majority Leader Harry Reid: said after a weekly meeting of Democrats that Congress may need more time.``It's important that we get it right, not get it done fast''.

COMMENTS:

History in the Making: Watch, listen, and participate in a manner that you can even if it means sending; email, fax, letter, or telephone calls to your Senator or Representative describing what you think.
What is the Big Hurry?: For years the Federal Government was focused on free market deregulation now they want to buy out all the bad debt in the country. In the stroke of a pen transfer all the problems and fiscal burdens from what was some of the wealthiest corporate owners in the country to the United States taxpayer.
What's Wrong with this Picture: Hurry, Hurry, Hurry, if we don't do it quickly and the way Treasury is proposing something terrible will happen, " the world and the USA could see their economies begin to shrink". Please note, to date we have yet to recognize officially that US economy is in recession. Maybe it is time to revise and update some of the indicators which are suppose to guide Main Street and Wallstreet to be more reflective of current economic trends.
Status Quo: $700 billion plus dollars seems like a steep price to pay to preserve the status quo. We as a country don't have enough money to bail everyone out who has a problem loan.

Finally, who is accountable for all of this. Enron occurred and we seemed to learn very little. I suggest that we serious look at the meaning of accountability and regulations with some bite to protect society and the business world from an overly focus emphasis on blind profit.

Jim

Person Harry Reid

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Retail Sales in U.S. Unexpectedly Dropped in August (Update1)

Sept. 12 (Bloomberg) Retail Sales in U.S. Unexpectedly Dropped in August (Update1) By Timothy R. Homan

Highlights

• Retail Sales dropped in August: The 0.3 percent fall followed a 0.5 percent drop in July, the Commerce Department said today in Washington. Excluding automobiles, purchases were down 0.7 percent, the most this year.
• Producer Prices: fell 0.9 percent, more than forecast, in August. So-called core producer prices, which strip out fuel and food costs, rose 0.2 percent.
• Seamus Smyth Economist at Goldman Sachs Group Inc.: ``By July, essentially all the rebates had already been distributed, and so were no longer providing support to incomes.'' In a note to clients on Sept. 2. ``Combined with weak job growth and tight credit, consumers had no way to fund additional consumption.''
• Ford Motor Co.'s Chief Executive Officer Alan Mulally: said in a speech this week. ``I've never seen anything quite like it.'' ``Not only is the U.S. in a recession, but the rest of the world is slowing down,''
• Consumer spending: will stall from July to September, three months earlier than predicted last month, according to the median estimate of economists polled from Sept. 2 to Sept. 9. The slump will slow growth to less than half the prior quarter's pace.

Comments

White Christmas: While the Farmers Almanac is calling for a cold white Christmas, it doesn't look like we will have a green Christmas for retailers.

Deflation at the Wholesale Level: Yes, a .9 drop in the PPI August numbers appeared - - a nice start for what I believe will continue into the Winter of 2008.

Interest Rates: Look for World Wide interest rates (Including the US) to continue to sag lower due to falling International demand and De-Leveraging of International Banking & Institutional Finance Portfolios resulting in tighter credit constrains for business and consumers.

Housing Crisis: Near term look for more of the same; higher foreclosure numbers as banks learn how to process and liquidate properties quicker and prices to continue to erode. This is all part of the multi-year readjustment process.

Jim

U.S. Payrolls Fell 84,000; Jobless Rate Jumps to 6.1% (Update3)

Sept. 5 (Bloomberg) -- By Shobhana Chandra

Highlights

• Jobless Rate: jumped to 6.1 percent, from 5.7 percent the prior month raising the unemployment rate to a five- year high.
• Payrolls Fell: "by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months."
• William Poole, former president of the Federal Reserve Bank of St. Louis: ``It certainly increases the probability that we really are in a recession,'' `It is a weak number, including the revisions.''
• Effects of the housing slump and the credit crisis: Can be seen in payrolls as builders fell 8,000 after decreasing 20,000. Financial firms trimmed payrolls by 3,000 for a second consecutive month.
• Today's Report: brings the total decline in payrolls so far this year to 605,000. The economy created 1.1 million jobs in 2007.

Comments

CRB Commodity Cash Index: is now trading below 500. Look for continued decline in a slow saw tooth price pattern. Why? Because global demand is dropping for goods reflecting falling demand for commodity products - - Big time. Similar to a canary in a mineshaft the commodity markets are foreshadowing troubled times ahead.

The Perfect Financial Storm is now coming Ashore
Resulting in:

* Rising unemployment.
* Falling real wages in the middle and working class sector of the economy.
* Continued Eroding Families net worth, creating downward pressure on consumer confidence.
* De-Leveraging of Banks and Large Financial Institutions resulting in tightening of domestic and International credit which will have a negative impact on consumer spending and business growth.
* Contracting profit margins along with rising bankruptcies.
* Elevated Deficient spending in Government and Private sectors will exacerbate recovery as Businesses and State, Local, and Federal Government begin to try and balance their books.

Deflation is the flip side of Inflation: Few people really understand it and what it means to their pocket book let alone the International Economy. But we will find out as this economic cycle continues to unfold.

Jim

Data Points to Downturn in Germany, With a Ripple Effect Feared

By CARTER DOUGHERTY Published: August 26, 2008

Adam Berry/Bloomberg News
Shoppers at a Filippa K clothing store in Berlin

Highlights

"FRANKFURT: The odds of a mild recession in Germany rose significantly Tuesday, 8/26/08. "

"German Statistical Office: said that private consumption shrank 0.5 percent in the second quarter, the third consecutive contraction. (lowest level since a downturn in 1993.)"

"Julian Callow, chief Europe economist at Barclays Capital in London: said that the reading raised recession warnings for the entire euro zone. “This is a bombshell,” “because in one fell swoop it went down far more than we would have expected.”"

"German Ifo index: compiled by the Ifo Institute in Munich, showed the lowest reading for business confidence in the last three years. A crucial component of the index, which measures expectations for the future, showed a level not seen since Germany tumbled into recession in the early 1990s, after reunification."

"Euro fell to $1.465 against the dollar: On Tuesday 8/26/08 the Euro fell to its lowest point since February, while oil prices were around $116, far off their summer peaks."

Comments

Why Germany: in a Subprime Solutions Blog - because it is my belief that we are in the first phase of a world wide deflationary cycle. Look for more of the same to continue to appear in Europe and Asia.

World Wide Slow Down: It is clear that Europe is beginning to catch the business slow down virus. It is now beginning to show up in it's numbers.

CRB Cash Commodity Index: is bouncing off the resistance at the 500 point level but look for it to continue downward in a saw tooth pattern into Fall and Winter of 2008.

Interest Rates: Global slow down will be putting downward pressure on interest rates World Wide and in a perverse sort of way result in stabilizing the dollar with a slight upward bias.

Jim

No more need for Freddie and Fannie Published: August 20 2008 19:53

No more need for Freddie and Fannie

Published: August 20 2008 19:53 - Financial Times: Editorial Comments

Freddie Mac and Fannie Mae are the platypuses of the financial world. As shareholder-owned companies which rely on state guarantees, the two government-sponsored enterprises are neither public fish nor private fowl. They are also evolutionary relics from another time. The US Treasury looks increasingly likely to bail out the two mortgage giants. But before it does so, Hank Paulson, the Treasury secretary, must think about an intelligent design for what he would like the GSEs to evolve into.

Fannie and Freddie are vast institutions, guaranteeing $5,300bn of US mortgages, of which 15 per cent are from riskier categories of lender. The credit squeeze and the housing slump mean borrowers are defaulting and Fannie and Freddie have run up significant losses.

Last month, responding to fears about their solvency and liquidity, the Federal Reserve gave the GSEs permission to borrow from the Fed’s discount window. Mr Paulson sought powers from Congress to allow him to, one day, bail out Fannie and Freddie, making their implicit state guarantee explicit. It had been hoped this would be enough to save them and that action would not be necessary. This bluff, alas, does not seem to be working.

Indeed, Freddie and Fannie are now finding it hard to raise new capital precisely because investors are worried about losing out in the event of a public bail-out.

The lumbering GSEs are too big to fail several times over. If Mr Paulson needs to save them, he may need to act very quickly. But he should not be thinking about simply keeping them as they are but on tighter regulatory leashes. The GSEs are set up to socialise losses and privatise profits. This is clearly ridiculous. In the short term it would be better to nationalise them to align risk and reward. In the long run, the government should get rid of Fannie and Freddie.

There is no need for the government to engage in the secondary mortgage market, not least because doing so provides perverse incentives for the state to prop up US house prices. The GSEs should be cut into small-enough-to-fail pieces before a real privatisation. Winding down the GSEs as we know them need not be immediate or rapid, but it should begin now, when it is easier to gather the will for reform.

The Federal Reserve and the Treasury are right to try to prevent the collapse of the GSEs. But they must now work to get rid of them. Conservation efforts have kept the duck-billed platypus alive. Freddie and Fannie do not deserve the same protection.

The Financial Times Limited 2008

Comments

Another Point of View: I printed the entire article because a variety of points are being raised about what to do with Freddie Mac and Fannie Mae. It appears some individuals think the two agencies should be dismantled and fade away due to the dramatic readjustment in the mortgage markets. Because they are the biggest, they are stuck with alot of Monday Morning Quarterbacks who are ready to throw them off the plane.

Workingman's Mortgages: For decades the two agencies have been the pulse of the workingman's mortgage either directly or indirectly. This never agreed well with many of their competitors (Large Banks, Mortgage Companies, and later financial Institutions who got into the game). Narrowed their profit margins. Certainly a big success for the average homeowner trying to purchase a home and the envy of the World.

Large Size: Is the reason why many or Freddie Mac and Fannie Mae competitors want to take them apart. It is also the reason why they have been so successful in the past. They could and did make a difference in the market.

Countrywide /Bank of America Merger: Not sure the consolidation of; Private Banking, Mortgage Banking, and Failing Financial Investment firms (JP Morgan/Bear Stearns) solves any problems or just kick's the can down the road another 12 to 18 months. But I do understand the global strategies which keep on growing market share and lowering execution costs/ overhead.

Merging Frannie Mae and Freddie Mac: Rather than dismantling, I believe, we should be talking about merging the two agencies together. Understanding that as stated above "In the short term it would be better to nationalise them to align risk and reward."

In an age of Global Consolidations: and mega size Corporations someone has to look out for the best interests of the working class citizens. I am sorry to say I don't trust the private sector to regulate themselves. We are experiencing world wide financial contagion and solutions will not be accomplished only though mergers or break ups.

Law of the Jungle: Works well for the animal kingdom but not so well in an evolved society. Without oversight/regulations in the financial markets we find an easy exit for the guilty parties and huge debt burden for the citizens in the end.

Jim

Gold, Oil Slump, Leading Commodities Plunge to Four-Month Low

Gold ingots are arranged for a photograph at the Mitsubishi Materials Corp. headquarters in Tokyo, Feb. 22, 2008. Photographer: Tomohiro Ohsumi/Bloomberg News Aug. 15 (Bloomberg) --By Feiwen Rong and Chanyaporn Chanjaroen

Highlights

• "Gold Plunged below $800 an Ounce: heading for the biggest weekly slide in more than 25 years, and oil, wheat and sugar slumped as the dollar's rebound reduced the appeal of commodities after a six-year boom."
• "CRB down 20 percent: from a record July 3, descending into a bear market. Declining raw- materials prices may help ease global inflationary pressures after consumer prices in the U.S. accelerated 5.6 percent during the year to July, the biggest jump in 17 years."
• Michael Pento, a Senior Market Strategist at Delta Global advisor's in Huntington Beach: California.:``There will be a precipitous slowdown in global growth and that means a lot less demand for things like energy and base metals. It would be insane to step in and buy oil or metals now. These markets will be vulnerable for the next four of five months.''
• Peter Luxton, an energy analyst at Informa Global Markets: `It's not just a U.S. problem, it's a global problem, and it's taking its toll on commodities,'' said . ``What's happening elsewhere is starting to take its toll.''

Comments

All that Glitters is not always Gold: I remember the Gold and Silver bubble from 1979 to 1980. There are investors who bought at the top of the market (Spiked up to around 875 an oz.) and as of today still aren't in profit. Be careful with gold, it will always have some value but that doesn't make it a good financial investment. It doesn't earn you interest, commissions on certain types of gold coins can run as high as 30 to 35% and higher, and liquidation of investment size portfolios can be a problem during market stress.

CRB Cash Index: Is an index to watch. (Refer to link on blog) I am looking for a near term support level around the 500 level. We will clearly experience a saw tooth chart pattern decline so I would expect some consolidation of pricing at around these levels for a bit. However, I am bearish on the long term chart and believe this is piece of the World Wide Deflationary puzzle we need to experience to justify my observations.

World Wide Slow Down: I am hearing that nothing can stop the growth of Countries such as China and India because they are; To big, To much momentum, Don't need the USA to continue to grow etc.... As this World Wide Economic Malaise virus spreads, they will be even more vulnerable than the more mature economies. We are all interconnected and don't have the luxury of only experiencing positive economic outcomes.

Jim

One Third of New Owners Owe More Than House Is Worth (Update1)

Aug. 12 (Bloomberg) --By Bob Ivry

Highlights

• "Almost one-third of U.S. homeowners: who bought in the last five years now owe more on their mortgages than their properties are worth, according to Zillow.com, an Internet provider of home valuations."
• "Second-quarter home prices: fell 9.9 percent from a year earlier, giving 29 percent of owners negative equity, said Zillow, the Seattle-based service that offers values for more than 80 million homes. For those who bought at the 2006 peak of the housing market, 45 percent are now underwater, Zillow said."
• "Prices fell on a year-over-year basis: in 140 out of 165 markets, Zillow said. Pittsburgh, Oklahoma City and Austin, Texas, were among the markets that saw rising home values, the company said."
• "Zillow Home Value Index: is the median valuation for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period, the company said. The index at the national and metropolitan area levels is calculated using a weighted average of the median home value for each county."

Comments:

Using your home as an ATM: Obviously those days are gone for now. But they sure did make it easy to spend your home equity. Now all that buying power is out of the market and you still have a debt hangover to repay.

Proud Negative Equity Homeowners: Not sure this is part of the American dream and wonder how it is going to play out with unemployment on the rise and times getting harder for everyone. What do you do with a home that has a large negative equity position, just mail in the keys with a short note, "Don't like it anymore you keep it".

Foreclosures: With almost 15% of the home sales foreclosure property I don't view these added sales as a positive. Yes, inventory reduction but are we encouraging others on the fence to jump into the foreclosure market to cut their losses. I mean, why pay and extra $100k if you can just walk away and rent a house for a while till the market settles down.

Jim

Wall Street Report Tries to Dissect Financial Meltdown

Highlights

• E. Gerald Corrigan, a managing director at Goldman Sachs & a chairman of the Counterparty Risk Management Policy Group III: " Virtually everybody was frankly slow in recognizing that we were on the cusp of a really draconian crisis,”.
• Wall Street: "Created complex structures that masked connections between asset classes as well as compensation incentives that pushed traders to take risky steps for short-term gain. The industry’s failings have now translated into pain for the broader economy, the report said."
• As Bear Stearns struggled: " in early March, investors feared that too many of those links would collapse if the bank folded — leading some Wall Street executives to say that Bear Stearns was not too-big-to-fail but rather too-interconnected-to-fail."
• Accounting for bundles of Mortgage loan Packages: "Those have been kept off the balance sheet, and many in the industry think that rules that would put the bundles back on the books should apply only to the future. The report suggests putting loan packages from the past — which will force many banks to raise more capital from investors."

Comments

Three Little Monkeys: See no Evil, Hear no evil, Speak no Evil and we all profit handsomely. The report itself is worth a quick glance if you have the time. Just read the intro and Summary and you quickly get the picture regarding what did and didn't happen.
Report - CRMPG3 Link: http://www.crmpolicygroup.org/

2+2=8: Through the magic of high finance and well oiled Credit Ratings support - the insane became sane. Yes, big profits for everyone and AAA ratings to boot.

Who can complain: and no one did. The Best brains on Wallstreet never saw it coming. I am sure the kids fresh out of school and hired to formulate the financial engineering structures didn't. How could they, they wrote expensive moving averages that work very well until the cyclical downturn. Then, like any good moving average does, informs you are upside down on the trade after the fact.

Leadership and Guidance: Nowhere to be found. Structured finance became to profitable to stop. With no regulations, off balance sheet advantages, and a Fed & White House to fully support you when you falter.

$500 Billions later: Nobody did anything wrong except for the poor slobs that really believed the Rating Agencies and Wallstreet story Book bond values. No crime, no foul - now the American tax payer can pay the tab.

Jim

Commentary - - 2nd Q. GDP - - INFLATION vs. DEFLATION

Trust: We are all losing faith in the numbers. Yes, the negative GDP in the 4th Q caught my attention immediately. Even 1.9 GDP 2nd Q number is highly suspect.

Stimulus Package: My thoughts regarding the stimulus package being able to jump start the U S economy bring to mind an image of a young boy throwing a snowball at the sun and thinking he will put out the fire.

Current Economic Problems Include:

* Elevated energy prices.

* Rising unemployment.

* Slow to falling real wages in the lower and middle working class sector.

* Falling profit margins across almost all industries and service sectors.

* Rising Bankruptcies.

* Stiffening Multi National production and service competition.

* Federal, State, & Local Deficit Spending - Will result in rising taxes and or cutting back of services, employment, and special programs.

* Housing Crisis - has destabilized the underlining asset pricing of various securitized fix income investment classes that has been distributed worldwide.

* Major De Leveraging - of Multi-National Banking and Financing Institutions has created credit conditions difficult for organic business and consumer growth.

Deflation: We are currently experiencing the symptoms of a World Wide deflationary cycle. One simple test is to monitor CRB Commodity Index - - It should peak this summer and start dropping in Fall and Winter 2008.

Monthly CRB Chart - Link: http://www.mrci.com/client/m-crb.pdf

Daily CRB Cash Chart - Link: http://www.crbtrader.com/data.asp?page=chart&sym=CIY0

Beware: Life long inflationary remedies used in the past will not protect your financial portfolio this time around.

Jim

U.S. Economy:Jobless Rate Climbs to 5.7% as 51,000 Jobs Lost in July

Paul Sakuma/Associated PressUnemployment brochures are on display at an employment training center in Menlo Park, Calif. The jobless rate rose to 5.7 percent in July.

By MICHAEL M. GRYNBAUM

HIGHLIGHTS

"Nation’s employers: eliminated 51,000 jobs in July, the seventh consecutive contraction in the labor market, as the unemployment rate reached a four-year high."

"July 2008: the unemployment rate rising to 5.7 percent from 5.5 percent in June, its highest level since March 2004."

"Teenage Unemployment: rate rose to 19 percent, its highest level in 16 years."

"Companies avoided job cuts: by reducing their workers’ hours, among private employers, the average work week fell to 33.6 hours from 33.7 hours in June."

"Robert Barbera, the chief economist of ITG: an economic research company. “The bad news is there’s nothing about the data that suggests improvement anytime soon.”

COMMENTS

Brother can you spare a dollar: As the credit crunch crashes through Main Street we are slowly beginning to see the fall out on employment. From teenagers, veteran auto workers, to service professionals we are all feeling the pinch and it is starting to hurt - - ouch. Sadly, there is no end in sight or even a hint of a plan regarding how to handle the problem.

Worried about Inflation: Jobs contracting across the board, overseas problems now bubbling up forcing them to tighten profit margins, and stagnant wage grow in the lower and middle sectors of the wage scale. These are deflationary signals.

Humm, cost going up and no money in my pocket, I wonder what is going to happen. I guess I won't buy that big luxury SUV with the extra wide profit margins or take that super duper luxury vacation. This year I will be taking a homcation - - and spend it with my wife and kids in the backyard.
Yep, just turn the water hose on and enjoy all the sun and fun of our backyard. For dinner we can have a real special treat from big Al's bucket of chicken shop, Honey, order all the fixing, No cooking for anyone while we are enjoying ourselves.

Jim

U.S. Foreclosures Double as House Prices Decline

A foreclosure sign is posted outside of a home in Loganville, on July 9, 2008. Photographer: Chris Rank/Bloomberg News

Highlights

• U.S. Foreclosure: Filings more than doubled in the second quarter from a year earlier.
• New Home Sales - Commerce Department: today reported that new home sales fell less than expected, and a Standard and Poor's measure of homebuilder stocks rose as much as 6.1 percent.
  
• Uncertainty: ``I believe a big part of the problem we're facing in the market right now is uncertainty,'' Sharga said. ``Buyers aren't sure if this is the right time to get in, lenders aren't sure where to lend, investors aren't sure where to put their money in an environment of depreciating assets. The psychology of the market is as responsible as the financial part of the market.''
• Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Company: "believes about 25 million U.S. homeowners risk owing more than the value of their homes."

Comments

Stop the bleeding: Can anyone please stop the the price depreciation bleeding. Like a boat taking on water, we have a huge rip in the side of the USS United States of America and we are trying to pump it out with a few buckets. Nothing changes regarding the Credit Crisis until we address the main issue of stabilizing the real estate pricing.

Housing Deflation - Yep, you have to go back to the Great Depression to find housing number like the one's we are seeing now. Hum mm, Federal Reserve is thinking about inflation and possibly higher interest rates. Treasury department is advocating banks tidy up their portfolios resulting in a significant amount of De-Leveraging of credit positions world wide. Profit margins are getting squeezed an unemployment is rising, middle and lower sector wages are not rising, and State and Local Governments are experiencing slow downs forcing them to either raise taxes an or cut expenses.
Bake for another 6 months to a year and we will all be financially cooked.

No Easy Way Out: No law or single individual is going to get us out of this economic mess quickly. Be prepared to start thinking how to protect your economic portfolio and assets because as the smelly stuff continues to hit the fan, you will be the last to know if you aren't paying attention.

Jim

Monthly RJ/CRB Index - Inflation/Deflation

Commentary

Inflation/Deflation

All the Luminaries: of the Banking and Wallstreet Communities are calling for inflation and higher Interest Rates . I would like to add my voice and shout it is not inflation but deflation we have to be prepared for.

Watch the RJ CRB Index: I believe the RJ CRB will top out this Summer and come Fall 2008 we will see falling commodity prices across the board. After a 7 year run another bubble is bursting, watch out below.Daily RJ/CRB Index:http://www.crbtrader.com/data.asp?page=chart&sym=CIY0
(Click on Link to see updated daily chart)

* The RJ/CRB Index: is widely quoted and referenced in leading print media sources such as the New York Times, Wall Street Journal and Financial Times and broadcast media outlets such as CNBC, CNN, FOX and Bloomberg Television.

* Respected academic white papers: on the subject of commodity investing - such as The Tactical and Strategic Value of Commodity Futures and Facts and Fantasies about Commodity Futures highlight the RJ/CRB Index.

* Included commodities and weightings Reuters/Jefferies CRB Index: maintains broad diversification through 19 commodities representing all commodity sectors – energies, base metals, precious metals, livestock, grains and softs. In determining starting annual weights for component commodities, benchmark indices employ differing approaches. The RJ/CRB Index employs equitable distribution wherever feasible while re-weighting exposure to selected markets, such as the economically important energy sector. The index is designed to be liquid and rational.

* RJ/CRB Index target weightings by sectors:

• Energy 39%
• Grains & Softs 34%
• Base Metals 13%
• Precious Metals 7%
• Livestock 7%

*Source: http://www.lyxoretf.com.hk/admins/files/lyxoretf/hk/files/374.pdf

Weekly RJ/CRB Index : http://www.mrci.com/client/w-crb.pdf

Conclusion

If it ends up being a true deflationary spiral, hang on to your hat, this will mean a new ride with different rules. You will have to learn on the run because previous inflationary remedies used in a deflationary environment will defeat you.

I suspect Ben Bernanke is correct in saying we will see falling inflationary numbers toward the end of 2008. Ben is a world class historian and I am sure eying the what ifs. Folks, for a Central Bank, deflation is a nightmare due to lack of a robust toolkit available for fixes.

Jim

Economy Will Stay Sluggish, Bernanke Tells Congress

Brendan Smialowski for The New York Times Ben S. Bernanke, chairman of the Federal Reserve, testified before the Senate Banking Committee in Washington on Tuesday 715/08.

HIGHLIGHTS

• Senate Banking Committee: "Mr. Bernanke avoided the word “recession” in characterizing the current economy, noting instead that consumer spending and exports were keeping growth “at a sluggish pace” while the housing sector “continues to weaken.”"

• Labor Department reported: " that wholesale prices rose 1.8 percent in June, making for the fastest 12-month inflation rate in more than a quarter century."

• Actions to Stabilize Fannie and Freddie: occurred over the weekend as the Treasury secretary, also called for Congress to approve emergency legislation giving the federal government power to inject billions of federal funds through investments and loans.

• Henry M. Paulson Jr.: The actions announced Sunday echoed similar actions in mid-March, when the Fed moved to avert a financial collapse of the investment bank Bear Stearns by offering an emergency loan to facilitate its sale to J. P. Morgan Chase. At the same time, the Fed set up emergency lending facilities for major investment banks hit by the credit crunch.

• “These steps to address liquidity pressures: coupled with monetary easing seem to have been helpful in mitigating some market strains,” Mr. Bernanke said. But despite the “positive effects” of the Fed’s actions, he said that the problems of unstable markets continued because of “declining house prices, a softening labor market and rising prices of oil, food and some other commodities.”

Comments:

Whose your Daddy and Mommy: The answer is the Federal Reserve & Treasury Department. The children are Large Financial & Banking Institutions. Meanwhile, today (7/15/08) in Encino, California police were called in to quiet and arrest if necessary, a crowd of over 200 people trying to get their money out of the new Indy Mac Bank. Early review of the records indicate that 1,000's of individual depositors will not be fully covered by the FDIC insurance. Kind of takes you back in time to, "It's a Wonderful Life" bank run.

No Relief on the Horizon: Rumors are now flying about other large Banking Institutions who were big lenders of Option Arm Mortgage loans as being in trouble. Sorry folks, as Wallstreet Walls crumble the large blocks fall on main street investors.

Rope a Dope: Yikes, June wholesale numbers up 1.8%. Listen to Professor Ben on this one. He is looking for a temporary spike in prices.

I believe before year end we will see major downward readjustments in commodity prices across the board. Why? Rising unemployment, Increasing Bankruptcies, continued international outsourcing pressure on goods and services, and no wage growth in the middle and lower class sectors. In addition, worldwide de-leveraging of capital market positions will lowers the velocity of money in circulation.

Another words deflation will start to appear - - something nobody wants to see.

Jim

U.S. Weighs Takeover of Two Mortgage Giants

Photo: Jonathan Ernst/Reuters Henry Paulson, left, and Ben Bernanke at a House hearing.ssss

Highlights:

• Fannie Mae and Freddie Mac: "Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

• Together the Two Agencies: "Touch more than half of the nation’s $12 trillion in mortgages by either owning them or backing them. They hold more than $1.5 trillion of the mortgages as securities. Others are sold to investors in the form of mortgage-backed bonds."

• Representative Dennis Moore, (D) Asked whether the failure of either institution would pose a risk to the financial system: “In today’s world I don’t think it is helpful to speculate about any financial institution and systemic risk,” Mr. Paulson said. “I’m dealing with the here and now, and the important role that they’re playing and other financial institutions are playing.”

Comments:

To Big to Fail: Fits the Freddie Mac and Fannie Mae situation. Depending on your definition and how aggressively the securities and assets were price, both are close or near insolvency. The Agency's Financial Crisis is upon us now.

What about the other large mortgage originators and producers: Both Freddie and Fannie are good organizations with experienced personnel dedicated to trying to deliver good value to the consumer. How do we draw the line. Who do we support and who do we abandon. Certainly, the stockholders are getting thrown under the bus making survival a hallow victory for equity holders who own Freddie Mac and Fannie Mae.

World Wide Systemic Risk: is what we have in the Financial System. This is by design because it was very efficient and profitable to centralize infrastructure and command. Once in place, without effective regulations, you leverage the balance sheet and rake in the profits. That is until the underlining assets stops appreciating and begins a cyclical downturn.

Exit Strategy: The question is, if everyone is looking to de-leverage their portfolio and tighten up credit restrictions, is that the slow motion recipe for an even deeper economic downturn.


Jim

Oil Tumbles as Signs of Slowing Economy Spur Commodity Selling

By Mark Shenk

A trader works on the floor of the New York Stock Exchange in New York on July 7, 2008. Photographer: Gino Domenico/Bloomberg News









Highlights:

• Worldwide Slow Down: "Oil in New York has dropped more than $9 since reaching a record $145.85 a barrel on July 3. Gold, silver, copper and corn also declined. The U.S. economy has sagged amid credit-market and housing slides. Contracts to buy previously owned homes fell more than forecast in May, signaling prices have yet to bottom."

• Global Recession: "All the bad economic news is making people take a second look at commodities,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Commodities were purchased as a hedge against inflation. A global recession is looking more likely, and it's the greatest weapon in the fight against inflation.''

• Group of Eight: ``We have strong concerns about the sharp rise in oil prices,'' the Group of Eight said in a statement today in Tokyo, where the leaders are holding their annual summit. ``The world economy is now facing uncertainty and downside risks persist.''

Comments:

Deflation: Is the elephant in your living room. Nobody know which way the knife will cut, Inflation or Deflation. We are focusing on inflation because that is what most of us know and can relate to from past experience. However, while we are watching the inflationary birdy and trying to formulate a strategy, the deflationary cat is stalking it's prey.

What Occurs during Deflation: (Source: Wikipedia)

• While consumers can buy: more with the same amount of money, they also have less access to money (e.g., as wages, debt, or the return realized on sales of their products). Consumers and producers who are in debt, such as mortgagors, suffer because as their (money) income drops, their (money) payments remain constant.
  

• Central bankers worry about deflation: because many of the tools of monetary policy become ineffective as inflation drops below zero (deflation).

• Deflation may set off a deflationary spiral: where businesses slow or stop investing, because the investment risk is perceived as higher than just letting the money appreciate due to deflation.

More to Come: I will continue to focus on this under-report aspect of the economy. Unless the underlining assets in all of these structure fixed income deals stop loosing value, any talk of a "Turn Around" is just hot air disappearing in the wind.


Jim

S&P/Case-Shiller Home Prices Fell 15.3% in April

Highlights:

• Home Prices: "In 20 U.S. metropolitan areas fell in April by the most on record. The S&P/Case-Shiller home-price index dropped 15.3 percent from a year earlier "
  

• James O'Sullivan: "A senior economist at UBS Securities LLC said, "There's such an excess of inventories that we certainly expect to see more price declines."
  

• Rising Borrowing Costs: "Fannie Mae, the largest mortgage buyer, last week cut its forecast for new and existing home sales this year as 30-year fixed mortgage rates jumped to an eight-month high."

Comments:

Testing the Water: "Come on in the water is just fine", is something I would expect to hear from a real estate seller. But to all you buyers eager to get in - - beware.

Rising Home Interest Rates: Certainly are complicating the picture. The Federal Reserve is in a very delicate situation of strengthening the dollar and fighting inflation versus stimulating the economy. Stable rates and prices would be nice but doesn't appear to be in the near term cards.

Jim

Horrid Housing Starts

Highlights:

Last three months: "the average seasonally adjusted annual rate for single family home starts was 689,000. The last time the figure was that low, Ronald Reagan was president and Paul Volcker was the Federal Reserve chairman. "

Another way to measure the decline: "has been is to compare the current seasonally adjusted rate with the actual number of housing starts over the preceding 12 months, again using three-month moving averages. A figure above 100 percent means starts are rising, while one below 100 percent means they are falling. The latest figure is 77 percent."

Long View: "It was the seventh consecutive month when the figure was under 80 percent. Other than a six-month string in 1981 and 1982, that figure has not fallen below 80 percent at any time since the figures became available in 1959. This is the 26 th consecutive month in which the figure was under 100 percent, meaning a declining market for starts. That matches the longest such streak ever, set in the mid-1970’s, when a severe recession was caused by soaring oil prices."

Comments:

Hold Tight: Currently, there is no indication that the bear market in real estate has run it's course.

Implications: Since the underlining assets are tied to National and International Fix Income Funds and Bank Holdings we can not anticipate any near term resolution of portfolio values until the knife (asset values) has stopped falling.
To all potential investors, be careful, it is very difficult to catch a falling knife.


Jim