This October, millions of Americans are going to watch horror movies and read horror stories because they enjoy being frightened. Well, if you really want to be scared, you should just check out the real horror story unfolding right before our eyes – the U.S. economic meltdown. It seems like more bad news for the U.S. economy comes out almost every single day now. Unfortunately, things are about to get a whole lot worse. The mainstream media has been treating "Foreclosuregate" as if it is a minor nuisance, but the truth is that the lid is about to be publicly lifted on years and years of massive fraud in the U.S. mortgage industry, and this thing has the potential to cause economic chaos that is absolutely unprecedented. Over the past several days, expert after expert has been coming forward and warning that this crisis could completely and totally paralyze the mortgage industry in the United States. If that happens, it will be essentially like pulling the plug on the U.S. economic recovery.
Not that there was going to be a recovery anyway. The truth is that economic statistic after economic statistic has been pointing to incredible trouble for the U.S. economy.
For example, the U.S. government just announced that the U.S. trade deficit went up again in August. According to the U.S. Census Bureau, the U.S. trade deficit was $46.3 billion during August, which was up significantly from $42.6 billion in July.
So how much coverage did this get in the mainstream media?
Well, just about none.
We have gotten so used to horrific trade deficits that it isn’t even news anymore.
But these trade deficits are absolutely killing our economy.
How long do you think that the U.S. economy can keep shelling out 40 or 50 billion more dollars than we take in every single month?
If you look at the countries around the world that have become very wealthy, almost all of them have gotten that way by trading with the United States.
Meanwhile, many of our once great manufacturing cities are turning into open sewers.
Every single politician in the United States should be talking about the trade deficit.
But hardly any of them are.
Is it because Americans have all become so dumbed-down that we don’t understand these things anymore, or is it because we are so…
Few people have nailed the deflationary environment as well as Gary Shilling. Shilling was one of the few people who foresaw the housing crisis and the equity market catastrophe in 2008 and although he remained bearish in 2009 he has been largely correct with regards to the macro picture. He believes we’re in for a prolonged bout with deflation and says Obama’s economic policies are only making matters worse.
John Burns Real Estate Consulting released a much-cited study this week arguing that the country has a "shadow inventory" of 5 million houses that will hit the market over the next few years.
Another startling assumption here: 80% of homeowners who are currently delinquent on their mortgages will end up losing their houses. Mortgage mods, meanwhile, will just delay the inevitable.
(From the perspective of the homeowners, it’s probably best to get the inevitable out of the way sooner rather than later, before throwing more money down the negative-equity rat hole.)
Us: Your study says that five million of the 7.7 million delinquent homes will go through foreclosure or a “foreclosure-related procedure.” How is this likely to occur?
Wayne: Most shadow inventory will get out onto the market as an REO or short sale. In any event, it results in the homeowner losing their home, and that home being added to the supply of homes available for sale.
Us: Do the remaining 2.7 million borrowers get their loan payments caught up?
Wayne: Of the 7.7 million delinquent homeowners, we actually think that only about 1.6 million will be able avoid losing their homes, and that the remaining 6.1 million will lose their homes. We say that there is 5 million units of shadow inventory because we estimate that about 1.1 million delinquent homeowners already have their homes listed for sale, and we would not classify those homes as “shadow.”
Us: When will this wave of foreclosures hit, and how will this shadow inventory affect home prices?
Wayne: We don’t believe that the shadow inventory will be dumped onto the market all at once. Although we don’t believe modification efforts will truly save a lot of homeowners from losing their homes, we do believe that these programs are effective in delaying foreclosures and pushing out the additional supply to later years.
In terms of pricing, as long as the economic recovery continues and mortgage rates remain low, we do NOT expect another leg down in pricing, despite the looming shadow inventory problem. However, if the economy takes another dip and mortgage rates spike, we’re certain to see
The latest NAHB numbers from yesterday are more fuel for David Rosenberg’s argument that housing is double dipping:
HOUSING STILL IN A DEPRESSION
It is truly a sad state of affairs when an extension of a housing tax credit, super- low interest rates and the incursion of the Fed balance sheet into the mortgage market all translate into a down housing backdrop. The NAHB index fell for the second month in a row, to 15 in January from 16 in December, 17 in November and the nearby high of 19 in September, which takes the headline down to June 2009 levels. In fact, this is the fourth lowest reading ever. What was really striking was the dip in the ‘prospective buyer traffic’ sub-index to 12 from 13 – the lowest this has been since last March when everyone seemed to think the world was coming to an end.
And the stimulus for housing, if not renewed, could add some uncertainty to the outlook – the Fed’s purchases stop at the end of March and the deadline for the $8,000 tax credit for first-time
buyers (and $6,500 for move-up buyers) is April 30, in terms of when the purchase contracts have to be signed, and the deal must be completed by June 30.
But the first kicker is expected to come today, as the FHA comes out with its new (and higher) fee schedule (to 2.25% from 1.75% according to the New York Times) and tightened lending standards too (though amazingly, the 3.5% minimum down-payment requirement is not expected to be touched; but a minimum FICO score of 580 established – this is largely for “show”) because what few people realize is the losses the government agency faces and the extent to which a taxpayer bailout lies ahead.
What is apparent is that the builders are still competing against a wave of foreclosed properties being dumped back onto the market.
RealtyTrac estimates that a record three million homes will be repossessed this year and that this flood
of supply will seriously curtail new home sales and construction activity. And, it is the government’s own policies that are creating these strains – go…
Pending Sales for November were just released and despite the market blowing it off, it was a significant print. The consensus was for Pendings to be down 2%…instead they were down a big daddy whopper 16%. Now that’s a miss. It goes to show how twisted housing analysts have become…slaves to stimulus. This release just gave you a glimpse of the new normal (ex-stimulus) in housing. Last month when new home sales came out far below expectations, several analysts said "it’s a blip because the stimulus was going away". No, that was not a blip — that was the real market showing itself just like it did this morning in the Pending release.
Already the analysts are trying to compare this morning’s release to last Nov 2008 but you can’t do that. This is because last Nov the QE was not in effect yet, rates were sky-high (about 6% to 6.5%), lending guidelines were all over the map, and prices were still in free fall along with the global financial markets. There was not a soul going pending – comparing Nov 09 with 08 is apples to oranges. Despite the $8k going away for buyers who went pending in Nov 2009, buyers still had a much more stable environment this year than last with rates 100bps lower. This is why comparing Oct 2009 with Nov 2009 is a much better comp that Nov 2008.
But in Dec 2008 everything changed with massive gov’t intervention and a crash in rates. The Fed QE forcing rates down sharply in Dec and spurring serious buying is why going forward — beginning with December Existing Home Sales due out in a couple of weeks — YoY comps will get much tighter, with many misses on tap in the near to mid term. In fact, my early CA survey shows sales down YoY about 20%. Last Dec, there was a robust 37,836 sales. In Nov 2009, there were only 35,860. I expect Dec CA sales to be roughly 30k. That is a big MoM and YoY miss and the theme for 2010 house sales because of the lack of inventory due to foreclosure moratoriums, mortgage mod initiaves, and epidemic negative…
OK, this factoid is just San Diego, one of the epicenters of the housing implosion. But the flip side is conventional wisdom is that the worst hit locales are bottoming first….right?
Maybe not. Again, generalizing based on one data point is not advisable, but this one is so striking that I can’t help but think that even a much lesser version of this pattern elsewhere would mean housing has a ways to go on the downside. That would be consistent with historic norms, since per Carmen Reinhart and Kenneth Rogoff, in severe financial crises, real estate takes over five years from its peak (which in our case was 2Q 2006) to hit the trough.
And this is the year when Option ARMs hit the wall in a big way too…
When the Treasury announced on Christmas Eve that it was lifting the limit on how much Fannie Mae (FNM) and Freddie Mac (FRE) could receive, one point that may have been lost on people was that neither of the GSEs were yet anywhere close to the $200 billion they’d been alloted.
It’s not like there was a need, under the current system to give them a permanent, unlimited blank check to cover their losses.
The government’s decision to provide unlimited support to Fannie Mae and Freddie Mac probably presages more aggressive action to prop up the U.S. housing market.
The government may put a mortgage-modification effort, called the Home Affordable Modification Program, or HAMP, into overdrive in coming years, pushing for reductions in the principal outstanding on home loans overseen by Fannie and Freddie Bose George, an analyst at Keefe, Bruyette & Woods, wrote in a note to investors Monday.
So basically, Fannie and Freddie will be called on to do everything humanly possible to prop up the housing market in the coming years. Mortgage purchases, principal reductions… everything. And as it goes nuts in its efforts, it will need a blank check so that its lenders don’t even get slightly nervous.
Another serious dip in housing would be killer to this recovery and Obama’s Presidential career. That can’t be let to happen.
Despite the huge and unprecedented rise in the Federal Reserve’s exposure to mortgage backed securities, the Fed says that it is unlikely to face any losses because it is only buying securities backed by Fannie Mae, Freddie Mac and Ginnie Mae.
This is meant to reassure policy makers and the public that the Fed is prudently protecting its balance sheet against losses. Protection against losses at the Fed is important to the public for three reasons.
Fed profits are an important source of revenue for the US Treasury. Any shortfall in that revenue will force the Treasury to borrow more or raise taxes.
Losses at the Fed could hurt its flexibility when it comes to policy decisions. Despite all appearances, the Fed does not have unlimited flexibility to manipulate interest rates without triggering inflation. If the Fed is facing serious balance sheet losses, it will be more difficult to continue low interest rates to combat a recession.
The prestige of the United States is on the line here. A faltering Fed will sap confidence around the world in the US, making it harder for both private and public institutions to raise capital in both debt and equity markets.
In short, the American people are hugely exposed to any losses at the Fed.
Which is what makes it so bizarre that we’re meant to be reassured by the fact that the Fed’s exposure to mortgage securities is limited by taxpayer guarantees from Fannie, Freddie and Ginnie. It’s taxpayer losses all the way down.
To make the situation even more mind boggling, we’ll add a further twist. The massive borrowing of the US government is supported, in part, by the Federal Reserve buying Treasuries. That is, the Fed is funding the very same government it is relying on to fund any losses from mortgage securities.
Look at it this way. Deep losses in the Fed’s mortgage portfolio would trigger payments from the Treasury backed mortgage insurers, which would have to be funded by the issuance of debt, some of which would have to be bought by the Fed to keep the borrowing costs down.
Two articles on collections of second mortgage debt being attempted, prior to resolution of the first mortgage. Normally, first mortgages have priority, but it appears owners of second mortgage obligations – debt collection agencies – are cutting ahead and demanding payback early and then using questionable tactics to accomplish their goals (e.g., filing suit without giving notice). – Ilene
Decency, security, and liberty alike demand that government officials shall be subjected to the same rules of conduct that are commands to the citizen. In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy. Justice Louis Brandeis
Americans who decided to take out a second mortgage on their home who are now underwater are in big trouble. In fact, they may finding their bank accounts empty and their paychecks dwindling in the near future:
Housing Doom: Josh Zinner of the Neighborhood Economic Development Advocacy Project in Manhattan said some lenders or trusts for banks that went out of business are selling off second mortgages today to debt collectors for pennies on the dollars. Those debt collectors are then going after the homeowners’ bank accounts or pay checks to recoup whatever money they can.
And if a bank or debt collection agency goes after you, for god’s sake, respond to the complaint in a timely manner:
Perhaps in part because they are not notified, people sued in New York City often fail to appear in court to protect their interests, according to a study released last year by MFY Legal Services, a nonprofit law firm in New York.
MFY found that just seven law firms filed nearly one-third of all the cases seeking to collect $25,000 or less in
Home prices fell 9.4% in September, according to the widely-respected S&P/Case-Shiller housing index. Analysts had been looking for a 9.1% decline, so this is a bit worse than expected.
On a sequential basis, home prices rose .3%, again, a bit worse than the .8% analysts had been looking for. The market is now back to where it was in Fall 2003.
The housing market is creeping back, but at a pace disappointing to the bulls.
Speaking on CNBC S&P’s David Blitzer said the report showed clear signs that the strong momentum seen over the summer is starting to crack.
The prophetic words of Antal Fekete in his now infamous 'essay' on Gold are as relevant now (perhaps more so) as they were when he first wrote them 15 years ago - especially as the Euro-zone migrates from lossening fiat-money to quasi-money (greek pharma bonds for instance). While summarizing this must-read discussion of mainstream economic orthodoxy's mis-teachings is impractical, his initial introduction sets the stage for what is to come: "The year 1971 was a milestone in the history of money and credit. Previously, in the world's most developed countries, money (and hence cred...
Damn. Two (MJ and Whitney) of the big 4 of the 80s gone – Madonna and Prince remain. Probably the most well known Star Spangled Banner ever…
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
Mario Draghi captured the utter ineptitude of him and every other Eurocrat out there when he said the following at today’s press conference in response to a question about a Greek exit: “To have a Plan B means defeat already. I am confident that all the pieces of this will fall in the proper places.”
Most 5-year old children in pre-school have already been told not to believe that they can always win and that “winning isn’t everything”, but Draghi & Co. still refuse to consider the possibility of failure even as it is staring them in the face. What’s really disturbing is that the stakes here are obviously much, much higher than they are o...
What with the word "next"? Also what's with the words "could be"? Without a doubt student loans are in a bubble and have been for many years. The source of the problem, as it always is with financial bubbles, is cheap money, loans to nearly anyone, and in the case of student loans, no way to discharge the debt, even in bankruptcy.
Top 5 RisersStockRatingAnalysisICABUYThe projected value for Empresas ICA is still rising quickly even though past earnings have already improved significantly.XBUYThe projected value for US Steel is still rising quickly even though past earnings have already improved significantly.FEICBUYProjected value continues to rise for FEI while long term increases in earnings growth are also becoming more widely expected.ASBCBUYMany analysts are expecting higher than previously expected long term growth from Associated Bancorp, and its near-term earnings outlook is also improving....
The following are the M&A deals, rumors and chatter circulating on Wall Street for Friday February 10, 2012:
Actuant Acquires Jeyco Pty
The Deal: Actuant (NYSE: ATU) announced Friday that it has acquired Jeyco Pty Ltd (“Jeyco”). Headquartered near Perth, Australia, Jeyco designs and provides specialized mooring, rigging and towing systems and services to the offshore oil & gas industry in Australia and other international markets. Additionally, its highly engineered products are used in a variety of applications for other markets including cyclone mooring and marine, defense and mining tow systems. Jeyco generates annual revenues of approximately $20 million.
Actuant shares closed at $27.33 Friday, a loss of 0.18% on average volume.
Greece was “saved” for less than 24 hours but now major ETFs around the world skid into the weekend on Greek fears
After wangling for a week or more, Greek took their new deal to the European Ministers meeting, only to have it promptly rejected and so as we go into the weekend, major global markets and ETFs have again hit the skids on Greece.
After two years of wangling, the European zone is demanding yet more and deeper cuts for Greece to qualify for the next round of bailout loans that will keep the country from going bankrupt on March 20th.
Major European and United States ETF responded negatively to the new developments:
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
Here is a quick update of past trades and our current position.
AA Money
No trade this week as we wait for AA to settle. Phil remarked last week that AA seemed overvalued. In the meantime, it looks like we might have to roll our Feb 9 calls. Good thing we sold only 5 of them against our position.
Last week P&L - 310.00
We lost ground last week, but we still have 11 months to sell premium!
FAS Money
Very good week for FAS Money as we benefited from the large amount of premium sold the previous week. We covered most of the shorts in advance of the Fed speech, but sold another set of options on Wednesday after the speech - 2 FAS calls that expired worthless on Friday, 2 FAS put that we are still holding and 2 FAZ put that we bought back for a profit on Friday. A late stick comparable to last week's almost gave us problems at the end of the day though!
Last week P&L - $4277.00
IWM Money
A decent week in this virtual portfo...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on ...
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(blogroll, archives,
more).
Contact Ilene to learn about our affiliate and
content sharing
programs.
Facebook
Twitter
LinkedIn 
del.icio.us
Digg
OK, this factoid is just San Diego, one of the epicenters of the housing implosion. But the flip side is conventional wisdom is that the worst hit locales are bottoming first….right?
Normally, first mortgages have priority, but it appears owners of second mortgage obligations – debt collection agencies – are cutting ahead and demanding payback early and then using questionable tactics to accomplish their goals (e.g., filing suit without giving notice). – 
Americans who decided to take out a 
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(