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