Saturday, September 30, 2006

New bank regulations ***OUCH***

Federal regulators yesterday cracked down on risky mortgage lending that fueled a housing bubble in the first half of the decade, requiring banks for the first time to ensure that borrowers are able to make dramatically increased payments on mortgages after an initial low-payment period is over.

The final rules for banks issued by the Federal Reserve, Federal Deposit Insurance Corp. and three other bank regulators also are designed to ensure that taxpayers do not end up picking up the tab for lax lending practices that proliferated during the housing boom, enabling people to purchase expensive homes often with no down payments, no proof of income, and even with a history of poor credit and bankruptcy.

While the new rules do not apply to the roughly half of mortgage lenders not attached to banks, state regulators have promised to adopt the federal guidance and issue similar rules for lenders and mortgage brokers they regulate. The Federal Trade Commission, which has jurisdiction over nonbank lenders, also is considering action.

A recent survey by RBC Capital Markets found that consumers remain largely in the dark, not only about the risks of nontraditional mortgages but also about the growing likelihood of a fall or stagnation in the market value of their homes, which would make it more difficult to refinance.

"Those who entered the end of the housing cycle with variable rate and interest-only mortgages are clearly at risk once their mortgages renew,"

foreign investors own about $3 trillion of U.S. mortgage-backed securities, and could start dumping their holdings if delinquencies and defaults rise.

"Given that many global investors are new to the U.S. residential [mortgage-backed securities] market, they may not be prepared. A financial market crisis of some form is a clear possibility."

Do you think these new regulations and record high inventory levels will produce a "soft" landing.

Friday, September 29, 2006

Military Spending and interest rates

The Federal Reserve will probably lower its benchmark interest rate in the first quarter of 2007 as slowing economic growth diminishes inflation pressures, according to economists at Citigroup Inc.

The biggest U.S. bank by assets previously forecast the Fed would keep its target rate for overnight loans between banks at 5.25% through June. The bank now predicts a quarter-point reduction by March, with the Fed holding the rate at 5% through September.

Surging liquidity today and lower rates coming up. The Fed is doing everything it can -- to keep the housing situation afloat. And it's obvious that, so far, the stock market believes the Fed will be successful in creating a "soft landing."

Do you remember Richard Koo's book, The Balance Sheet Recession in which Koo noted that the US consumers were tapped out, that corporations had no particular incentive to spend, and that it was up to the government to spend in order to keep the economy simmering? Well, I doubt if Bush or his buddies read the Koo book, but Bush is a super-spender. In fact, Bush will go down as the biggest spender in history.

The wars in Iraq and Afghanistan plus the added "war on terror" are sending US government spending into never-never land. And oh yes, do you remember (I do) Eisenhower's comments in his last speech in which Ike warned about the "military-industrial complex"? When the America's military and its defense contractors and its politicians get together, the result is spending, and I mean HUGE spending. For instance, consider the following --

The Air Force is controlled by fighter pilots, old fighter pilots and new ones. And these guys love the F-22, a super jet-fighter plane that was originally designed to beat the Russian fighter pilots during the cold war. The F-22 cruises at Mach-2, twice the speed of sound. It is invisible to radar, it's a technical marvel. The only problem is that it's unbelievably costly -- it comes three for a billion dollars or about $350 million a copy. The plane is manufactured by Lockheed-Martin. A fleet of 183 of these planes has been budgeted by the administration. The F-22 lobby (Lockheed, the Air Force and some Senators) is tremendously powerful. Beyond the 183 F-22s already ordered, the Air Force says it needs a total of 381 of these planes. That would come to a total bill of around $13 billion. And then there's the up-keep.

As I said, the F-22 was designed to fight the Russians. But the Russians are no longer our enemy. Today our enemies are the Muslim extremists. And these guys don't give a damn about jet-fighters, they fight on the ground with rockets and rifles and dynamite and machine guns and home-made mines. Stuff like that. So why are we spending billions of dollars on more F-22's when the US already controls the skies? Well, it keeps Lockheed-Martin busy, and it maintains a bunch of jobs in selected states. And it's all just part of the military-industrial complex. It makes work, and it runs up astronomical bills.

Thursday, September 28, 2006

Swimming pools and housing

Count the pool equipment business as a sector already feeling the effects of the housing market's downturn.

Pentair Inc., a Golden Valley-based maker of fluid-handling systems, said Tuesday it wouldn't hit its earnings forecast for the third and fourth quarters. A key part of the difficulty for the company is the slowing market for pool equipment in Florida and Southern California.

Florida and Southern California, home to some of the country's largest pool companies, are in the midst of a marked downturn in the pool business.

"It's mostly attributable to the housing market," said Jeff Fausett, CEO of Aquatech, based in Huntington Beach, Calif., that does business in 45 states. Pentair is the company's largest supplier.

New home construction is down in Southern California, houses aren't selling as quickly and "people are being more conservative about their spending habits," he said. The pool market there is down 20 to 30 percent.

In Florida, Fausett said, fear of more hurricane damage might be slowing consumers' pool-buying decisions.

Tuesday, September 26, 2006

IMF Study

The International Monetary Fund did a study on previous housing busts, collapses that have occurred around the world. Dr. Kurt Richebacher notes that the IMF study showed the following reasons why housing collapses have severe consequences, and why housing busts are more serious than stock market busts.

House busts have a more negative impact than stock busts on the soundness of the banking system.

House busts, more than stocks collapses, spill over into other asset classes.

Most house busts have resulted from credit tightening, which in turn was generated with the purpose of bringing down inflation. The act of credit tightening increases the burden of real debt (mortgages). In credit tightening, the value of a house tends to decline in price, but unfortunately, the mortgage burden remains the same.

Richebacher points out that currently, housing has not been hit by credit tightening. The problem today is a matter of the puncturing of a bubble. The price of homes got out of sight on the upside, and too many homes were built. Previously, the Fed simply eased up on money and interest rates, and the housing mess was solved. But this time, home prices rose to bubble levels and far too many homes were built. This time a mere easing of credit is probably not going to solve the demise of the housing bubble.

I must say, however, that the stock market acts as though declining interest rates are going to solve the housing problem -- or at worst produce the longed-for "soft landing."

The Homebuilder ETF violently declined in mid-July. Since then the Homebuilder ETF has been rising, and at this point we can't tell if the rise is simply the normal correction of a severe decline -- or whether something more bullish is occurring.

Have we hit the bottom???

Monday, September 25, 2006

Market Thoughts

The cover story in this week's Economist magazine is "The Dark Side of Debt." A paragraph from the article, "The world is once again in the grip of a spree of lending, but this time to companies rather than countries. What is striking is that much of this lending is occurring not through public share and bond markets. The issuance of syndicated loans vaulted to $3.5 trillion last year from $ 2.3 trillion in 2000."

The net result of the removal of gold behind paper money has been a virtual explosion in credit creation and liquidity. The sheer amount of liquidity that is floating around the globe is incalculable. Fifty trillion, one hundred trillion? Nobody knows. The only thing we do know is that the total amount of unbacked paper is utterly enormous. The result is that it's floated up the price of everything from stocks to bonds to real estate to commodities.

In the face of this enormous inflation of paper money and credit, the Fed pretends that it's holding back inflation. The Fed does it with phony inflation statistics. The current reasonably accurate inflation number is 7 percent. The current estimation of the M-3 money supply is 9 percent. The only thing holding back massive price inflation today is the massive over-supply of goods.

So today we have the almost unprecedented situation of too much money confronting too many goods. The result is a highly unstable market with accompanying massive speculation and leverage.

And people still ask me why I own gold. Gold offers solid protection against that time when the entire "house of fiat paper" comes crashing down. At which time panicked investors will be wondering whether there is anything left in the system that is real. And, of course, the answer will be gold. It all starts with honest, intrinsic money, and it all ends when honest money is superseded by garbage money. The framers of the Constitution of the United States knew that well, which is why they specified that only "specie" (gold and silver) are real money. But a small group of bankers, with the help of an ignorant Congress, foisted the Federal Reserve onto this nation, and the results are what we have today.

The system is an inflationary fraud, and as night follows day it will collapse. The only mystery is the timing, but in investing the great unknown is always timing. Which is why John Magee insisted, "Don't tell me what to buy, tell me when to buy it." Even Warren Buffett, who lost almost a billion dollars betting against the dollar, knows the meaning of that aphorism.

Stock Market -- Housing is sinking, car sales are sinking, everybody knows that. In the face of this "news," rates are declining and the Fed must be pumping up the money supply. What about the stock market? So far, the stock market is acting as if declining interest rates and plenty of liquidity is going to produce a "soft landing" in the economy -- and I emphasize the phrase "so far." Because the stock market can change its mind overnight.

Sunday, September 24, 2006

Mortgage withdrawals

Much to many economists’ surprise, mortgage equity withdrawals in the second quarter have remained at an $800 billion annual rate, about the level of the past year. Of course, this suggests that the inevitable fall in home equity draw-downs and its effect on consumer spending are still very much in front of us.

Saturday, September 23, 2006

News ***Big week ahead***

Housing market news arrives on Monday, with the release of August existing-home sales. Of key importance will be inventory figures, which reached record levels in July.

On Tuesday, the lone economic indicator slated for release is the consumer confidence index.

Housing will be back in the spotlight Wednesday, as the Commerce Department releases August new-home sales. New-home sales are anticipated to drop.

Meanwhile, August durable good orders also will be released Wednesday. The orders are expected to rise.

"Housing is going to see continued weakness and could possibly surprise on the downside, but that will only make the economy look weaker than it actually is," says Milton Ezrati, chief economist at Lord Abbett. "On the other hand, the durable goods data should come in relatively strong because corporations are cash rich and they are spending on new equipment."

"September is traditionally terrible for investors, but this year, the stock trader's almanac has been proven wrong," says Wachovia. "The big problem going into the final week is that the market is overextended, and we started to see that with the selloff at the very end of last week."

What about October? (Fires, Earthquakes, and Market Crashes)

Thursday, September 21, 2006

Contra Costa: Prices decline

The rising median sales price that started in December/January appeared to have topped out in July. Since then, our 10-day moving average of the median sales price in Alameda and Contra Costa counties declined from around $620,000 to below $580,000.

Wednesday, September 20, 2006

Housing and money supply

Housing -- So far, the stock market has totally ignored the housing situation. The Stock Market obviously doesn't think that the demise of the housing bubble is going to be a problem. I never take the position that I'm smarter than the market. If the market is doing something that is puzzling to me, I ask the question, "What could I be missing?"

I know home inventories are piling up. I know that it's difficult to even get a bid on a house you want to sell. I know that housing is a huge part of the US economy. So what could I be missing?

One thought comes to mind. The Fed obviously knows what's happening in housing. On this basis, I wonder if the Fed (quietly and subtly) isn't flooding the system with liquidity. If that's what the Fed is doing, that would explain the rise in bonds and that would explain the rise in stocks.

In every speech, Fed Chairman Bernanke has mentioned housing and the mortgage market. Clearly, housing has been on his mind. The more I think about it, the more it makes sense that the Fed would be flooding the system with liquidity.

Note -- If I'm correct, it should soon show in the action of gold.

Too bad the M-3 money supply figures are gone -- I'd really like to see what's happening to the money supply. My bet -- it's huge and expanding.

Tuesday, September 19, 2006

PMI Risk Index ~Bay Area #3~

San Diego-Carlsbad-San Marcos, CA 603
Sacramento-Arden-Arcade-Roseville, CA 601
Oakland-Fremont-Hayward, CA 600
Santa Ana-Anaheim-Irvine, CA 599
Nassau-Suffolk, NY 598

The Sacramento housing market is cooling at the quickest rate in the nation.

From: Sacramento Landing Housing Bubble blog

Monday, September 18, 2006

Campbell Real Estate Timing Letter

"The Campbell Real Estate Timing Letter" Campbell publishes a mixed technical and fundamental report basically aimed at Southern California real estate, but which, I believe, pertains to the whole US real estate picture. Campbell doesn't simply spout his opinions, he provides real research to back up what he says.

Campbell starts his report by quoting Hemingway's classic book, "The Sun Also Rises." In the book Jake asks his friend, Bill Gorton, how he went bankrupt. Replies Gorton, "Slowly, at first, then very, very rapidly." This is what Campbell sees for Southern California real estate.

Writes Campbell, "After the most staggering real estate boom in history, housing prices all across the country are now clearly in the process of correcting from their insanely high 2005 peak valuations." Towards the end of the report, Campbell writes, "How long will the downturn last? For those of you who live in Southern California, here's a quick trip down memory lane. When the 1980 bubble burst in Los Angeles, prices took 4-6 years to recovery. When the 1990 bubble burst in Los Angeles, price took 7-9 years to reach their previous cycle peak. . . Loose mortgage loans that prolonged the boom will worsen the bust. Homebuyers are now going to pay the price for their 'buy now, worry later' spending spree. The good news it that we will have the opportunity to buy real estate in California and in the United States at significantly lower prices than they are today."

I happen to agree with Robert Campbell. He was correct and bullish all the way up in the real estate boom. His real state index turned bearish in August 2005, and he has been increasingly bearish ever since. He writes, that "The current minus 48 Crash Index reading is the lowest since December 1991, a potentially very ominous sign."

But here's the main point I considered after reviewing all his research. For the sake of argument, suppose Robert Campbell is correct. Suppose we are in for an accelerating, multi-year bust in real estate and particularly in Southern California real estate? If that happens, then all bets are off. This will be the major event of the year and for many years. It will affect all the economies of the world. It will affect everything because if we experience a real estate bust, US consumers will reverse their consuming habits, they will struggle to pay off mortgage debt. Sentiment will change, debt will become a dirty word, and Americans will start to save again.

And if you don't think that will impact the world economy, then you're living on another planet. Remember, the US Gross Domestic Product represents 25% of the world economy. No other nation's economy even comes close. The world has prospered during recent years on the insatiable buying activities of Americans. If that slows down, the world economy will slow down. Everything slows down, even China and India will slow down. What I'm talking about here is a world event. And it all hangs on US real estate, and whether the real estate bubble gives way to what I term a hard, a very hard, landing.

Next question -- what do we do or where do we put our money if the potential hard landing becomes a reality? This is a very tough question with no sure-shot answer. My own inclination is to opt for T-bills and an investment in gold. You may want to include smaller investments in selected stock groups, but I think T-bills should be your major position.

Won't the Fed enter the picture with even more massive injections of liquidity? The answer is yes, if housing falls apart the Fed will open the liquidity spigots and bring interest rates down. But how will this help homeowners who are unable to service their mortgages? Answer -- lower rates will tend to mitigate some mortgage payers, but in general people with low "teaser rate" mortgages will find their payments higher, despite what the Fed does.

The whole picture I'm trying to present is one in which housing is shaky, stocks are overvalued, bonds are a question market, and the best strategy is what appears to be the safest strategy.

Sunday, September 17, 2006

Dodge Power Wagon ~PHOTOS~

Friday, September 15, 2006

San Diego housing market: sales down 32%

News from San Diego's formerly "hot" real estate market - San Diego County's residential real estate market continued to cool last month, with overall prices down 2.2% from August 2005.

It was the third straight month of year-over-year price declines.
It also was the slowest August in terms of sales volume since 1997.

The median price for all homes in August was $482,000 for 3,666 sales, compared with a median price of $493,000 for 5,379 sales in August 2005.

August was also the 26th consecutive month in which the total number of homes sold fell on a year-over-year basis. The year-over-year decline in total sales last month was 31.8%, the biggest for any month in 11 years.

San Diego has been viewed as the canary in the coal mine because San Diego has been in the forefront of the housing boom. Real estate analysts across the nation are watching what's happening in San Diego.

Housing is not in a free fall here. Turnover is slowing month by month and prices are soft. Whatever is happening is happening very slowly but persistently. I'm now seeing many "for rent" signs going up. Home-owners who can't get the price they want for their homes are trying to rent their homes rather than lower the price. Even if they did lower the price, they are not convinced they could sell their home. Bids are drying up.

The housing market overseas has been holding up fairly well, and in countries where prices have come down, there is a general firming now going on. One difference between the US and the overseas housing market is that in the US housing is a larger percentage of the economy than the overseas markets. Also, in the US the savings rate is negative.

Debt is also a problem in the US. Annaly Capital Management (mortgage real estate investment trust) estimates that of the $2.3 trillion Americans borrowed last year, $1.3 trillion of it was home-mortgage debt. Almost half of that $1.3 trillion or some $500 billion was used to buy cars, big-screen TVs, water toys, etc.

So -- is what we've seen so far just the tip of the national real estate iceberg? Or will the US get through the decline of the real estate bubble with flying colors? All I can say is that so far, the danger signs are missing. Take Countrywide Financial Corp, a major holder of mortgages. The stock has dropped from a high of 43 back in May to a low of 32 in August. The stock has been rallying since, selling at just under 35 yesterday. The stock corrected yes, but no disaster here. I'd say it's been about the same story for all the mortgage stocks, at least so far. It's been the same story for almost all of the home-building stocks.

Today was a BIG volume day in the Stock Market, over 3 billion shares, but upside volume was only 54.4% of up + down volume.

Thursday, September 14, 2006

Home Builders: Rated in the Bay Area

JD Powers rated 16 builders in a Bay Area survey.

1.) Centex placed first with a score of 147

2.)Pulte with a score of 139

3.) Lennar with 127

LAST on the list: Concord-based Seeno Homes placed LAST with an 84 score.

Contra Costa: No housing bubble here

Housing bubble may spare East Bay

Local Federal Reserve bank chief says East Bay economy will counteract slumping real estate market

A real estate bubble will not jeopardize the Bay Area housing market, primarily because of a robust regional economy, the head of the local Federal Reserve bank said Tuesday.

"I never said for sure there was a bubble, but that it was a possibility. I guess I was inclined to think maybe there was (a bubble). But I have seen what has happened in the last year or so, and now I'm more dubious."

So what prompted a change in Yellen's analysis of the housing market in the Bay Area? Quite simply, the economy has prospered in the Bay Area. And one of the main drivers has been the robust job growth in the East Bay.

Some economists, including analysts with the UCLA Anderson Forecast, had expressed concern in recent years that the increase in California home prices was not justified because rental rates had not kept pace.

"The run-up in housing prices was really driven by fundamentals, not speculation," Snaith said. "Growth in the Bay Area economy and the state overall was not confined to housing-related sectors."

. Yellen, though, does not expect a recession, and she predicts an economic slowdown will be temporary and not long-term. Yellen in her speech to the chamber also predicted that the inflation bogeyman will spook the economy less and less as time passes.

"The most likely outcome is that inflation will move gradually lower," Yellen said.

Contra Costa Times

Wednesday, September 13, 2006

Contra Costa: Lower peaks in sales

While the number of units sold in August in Alameda and Contra Costa counties rebounded to 2,726 units from the July low of 2,548 units, the technical signs of lower peaks since 2004 indicate overall market weakness. The important thing to keep an eye on is whether the March 2006 low would be violated.

Tuesday, September 12, 2006

Contra Costa: prices heading lower

Sellers received, on average, $5,843 less than what they're asking for in the month of August. Since it dipped below the neutral line (blue $0 line) This is the 9th consecutive month sellers have to settle for less than their asking prices. August's low also violated the January low of $5,127. From the technical analysis point of view, we therefore have a formation of lower low, which is a sign of the market weakness.

Deflation and Debt

Over the next few years over $2 trillion in adjustable-rate mortgages are due to be reset, and reset at substantially higher prices. Meanwhile, tens of thousands of new homes are still coming onto the market, and inventories of unsold homes and condos are rising to record highs almost everywhere.

In the big picture, the world depends on the insatiable willingness of Americans to spend -- even if it means going into debt. In turn, Americans depend on the rise in the value of their homes to facilitate their spending. If the price of housing in the US halts or (God forbid) actually declines on a year-to-year basis, Americans will cut back on their spending. This could easily set off a recession in the US.

With the incredibly high levels of debt in the US, anything even hinting of recession could trigger deflationary trends. Deflation would put tremendous pressure on debt, and this could lead to an all-out bust in the US economy. The Fed cannot tolerate deflation -- in the face of a deflationary recession, the Fed would force short rates almost to zero. This would favor T-notes and bonds along with the highest-grade debt.

In a deflationary recession, there would be a rush for liquidity, and that would mean selling assets for cash. Anything tradeable would be thrown on the market as a way of raising cash. Commodities would suffer, gold and silver would suffer, oil would probably suffer, home prices would suffer, stocks across-the-board would suffer, medium to lower-grade bonds would suffer. All activity would be aimed at raising cash.

The debt and mortgage monsters would hold sway over the land, and the main thrust would be to avoid possible bankruptcy. Debt would be the enemy. You pay off debt with cash. You avoid bankruptcy by being solvent -- the less debt you hold, the more solvent you are.

Only four things can happen to debt. Debt can be serviced, it can be renegotiated, it can be inflated away or it can be reneged on. In the future, I predict that all four options will be utilized.

But there's another factor about debt. Massive debt in itself is deflationary. Massive debt acts like a sponge in that it sops up cash, since it's cash that services debt. To offset this deflationary feature, it is necessary for a government to inflate. If a government does not inflate enough, then the pressure of debt exerts a deflationary force.

This may be happening today. What I mean is that the Fed may not be inflating enough. This "emergency" could get quickly out of control. Declining gold may be the signal that this is, indeed, what is happening.

Sunday, September 10, 2006

Baby Boomers and Housing

The 2008 retirement of the Boomers born in 1946--the first year of the Boom-- has been drawing a lot of media attention: if Medicare and Social Security are running huge deficits now, what happens as millions of Boomers start retiring and drawing their entitlement benefits?

What happens to the housing market when Boomers start selling off their primary residences and investment properties? Given that the generation behind the Boomers is much smaller in number, who exactly is going to buy all those millions of properties? What if the supply of housing for sale swamps the demand, not just for a year or two but for a decade or two? What happens to the price of any commodity when the over-supply is basically permanent?

Then there's the financial assets, stocks and bonds. As Boomers start drawing upon their IRAs and 401K plans, guess how they will raise cash--by selling the stocks and bonds in their retirement accounts. Selling them monthly, year after year, or liquidating them in huge chunks to pay retirement or healthcare costs. What happens to the stock and bond markets when there is an unceasing wave of relentless, decades-long selling by millions of retirees? Exactly who will be the buyers of the hundreds of billions in stocks and bonds which will soon be liquidated?

The saying is, "Demographics is destiny," it speaks to the power of raw numbers and simple multiplication. Programs such as Medicare which were designed in the 1960s to pay modest sums for the care of a few million poor elderly are now on the entitlement hook for tens of millions of oldsters, millions of whom are loaded, wealthy, rich, call it what you will--and their care is anything but modest.


Friday, September 08, 2006

Back on the Market: Contra Costa - Alameda

While the number of listings withdrawn from the market continues to break new highs, the number of BOM (Back On the Market) listings fails to keep pace. 517 listings went back on the market in August, which was fewer than 567 in the same month a year ago. Traditionally, the number of BOM listings bottomed in Dec/Jan (see red circles) and peaked in September. We'll see whether last September's record of 609 would be surpassed at the end of this month.

Wednesday, September 06, 2006

Risk and Housing to the mean

Historically, areas which price risk-protection very cheaply have not turned out well for investors. Even Alan Greenspan in one of his last speeches warned investors about that. When he talked about risk he was very right. When the price of risk-protection is on the bargain table, it's time to watch out. The market loves to attack at a time when stock-holders are most confident and least prepared for trouble. Which is another way of saying that the situation is most dicey when investors are most convinced that all is well -- and when they feel most comfortable about ignoring risk.

The one thing that could totally upset all bullish scenarios would be a real estate collapse taking home prices below the mean. Regression to just the mean in real estate prices would be a modern disaster.

Withdrawn listings: Contra Costa/Alameda

The number of listings withdrawn from the market continued to move higher. 5,080 units of listings were taken off the market in the month of August. This is the highest level I've seen since I've started tracking this statistics. The interesting question is what do these sellers do after they withdrew from the market.

Tuesday, September 05, 2006

Risk and Housing

Housing -- The importance of housing cannot be over-emphasized. Think of it this way -- the US economy represents about 25% of the entire world economy. Buying by US consumers represents almost 70% of the US Gross Domestic Product. The wealth of US consumers lies mainly in their homes. If there's a major decline in US housing, it will affect the entire world economy.

Affordability has to do with how much a buyer must earn in order to afford a home. I've written many times that when you buy a house you can figure the total annual cost will average about 10% of the purchase price (mortgage cost, taxes, upkeep, repairs, gardening, loss of interest on the money you put up).

I see people buying houses or condos here in Contra Costa County, and these houses can cost up to a million dollars and in many cases more. That means that these people will be spending $100,000 a year on average to carry their homes. Most of these new buyers don't make $100,000 a year. They're buying their homes with big mortgages or variable-rate mortgages often with as little as 1% down. These people figure that the price of their house will just continue to increase, and the appreciation will take care of the expenses. They're crazy, it isn't going to happen that way. In the end, they're way over their heads -- they shouldn't be buying these million-dollar houses, they can't afford these houses, and in the end they'll be tossing the house back on the market rather than accepting the endless losses.

Expired listings: Contra Costa - Alameda Counties

There is usually a spike of the number of expired listings (properties not sold when the listing contracts expired) on the 1st day of each month. And, keeping track of this stat provides us with an insight of the market's internal strength or weakness. On September 1, 2006, there were 321 listings expired. This was the 2nd highest number of the daily expired listings. We'll see if the January 1, 2006 record high of 352 would be surpassed in the coming months.

Monday, September 04, 2006

Great chart of dicey loans

According to the Fed's own figures, “the total amount of residential housing wealth in the US just about doubled between 1999 and 2006, up from $10.4 trillion to $20.4 trillion.”

UP $10 TRILLION IN 7 YEARS! That is the very definition of a humongous, economy-killing equity monster. In other words, the Fed knew the actual size of the bubble and chose to steer it towards the nearest iceberg without warning the public.

Click here for CHART

Saturday, September 02, 2006

Housing Stats

The difference a year makes.

Recent data quantify the housing cool-down (year-over-year changes).

Builders' sentiment -52.2%

New-home sales -21.6%

Purchase-mortgage applications -20.9%

Building permits -20.8%

Housing starts -13.3%

Existing-home sales -11.2%

Existing-home inventories +39.9%

New-home inventories +22.4%

"What about the slide in housing?" The housing situation doesn't look good to me, and maybe that's why we seeing the non-confirmation in the stock Averages. But the banks are holding up, Fannie Mae and Freddie Mac have been rallying, and you'd think if we were on the edge of a housing crisis, they'd be heading south, not north.

Friday, September 01, 2006

Were in the bad part of the year

An inverted yield curve is supposed to be a harbinger of recession. Well, the yield on the 10 year T-note is now 4.72% while the yield on the shorter 91 day Treasury bill is 4.90% with the shorter maturity yielding more than the longer maturity. That's an inversion, and classically the longer the inversion lasts, the higher the odds for a coming recession.

At the same time, the so-called leading indicators hit their high in January, and they've been dropping ever since. Like the inverted yield, the leading indicators are also providing a forecast of declining business.

Seasonally, we're in the "bad" part of the year, which is the May to October period, when it often pays to be out of the market. On top of this we're in the negative part of the Presidential Cycle, which usually sees stocks down for the year.

Finally, stocks are overvalued in that the S&P is selling at over 17 times earnings while offering a paultry 1.9% dividend yield.

There are times when our main concern should be simply be -- to avoid losing money.