Tuesday Wrap-Up

Well we made some progress but was it enough?

The Dow picked up 133 points, about 1/3 of what we lost in the past 5 days, the S&P regained 1/4, the Nasdaq NONE on a very poor finish, the NYSE 1/3, the Russell 1/4, the Transports LOST GROUND and the SOX LOST GROUND.  Woo-hoo, party time – excellent…

We got our early boost today from Buffett’s offer to bail out the bondholders but the terms weren’t attractive enough to get a bite from MBI, ABK or FGIC and I consider that a good sign that they are not that desperate but some pundits are spinning it as too little too late.

Too little too late may be the answer to "What is Paulson’s plan to help homeowners" but we need to be fair and give the secretary more than a month to get something going as it did, after all, take Bush, Greenspan and Bernanke 7 years of hard work to wreck the economy – looking for an instant fix is just plain silly.  Poor Paulson is also working with his hands tied behind his back as our President has instructed him to find a private sector only solution even though Mr. Buffett just showed us that the entire municipal bond system can be backed up for just $5Bn in cash, about what George spends each weekend in Iraq. 

So we’ll go to war to keep foreign terrorists from blowing up your home but, when financial terrorists are destroying your home’s value and 7,000 Americans a day are losing theirs, the extent of the compassionate conservatism extends only so far as to set up an 800-number so they can steer you back to your lender.  Meanwhile all the "Hope Now" project really does is circumvent the hard fought "Do not call" list and allows the government to do all the telemarketing for the mortgage industry.

 Current Housing Indicators                                                 

As Diana Olick observed about today’s "big announcement" of "Project Lifeline," which will give borrowers who are about to lose their homes 30 days to work something out with their lenders:  "Why did we need a press conference and a title to do something that lenders should probably be doing in the first place?"  Nothing is being done to address the real problem facing many homeowners – the homes just aren’t worth what they used to be!

Note the 10% drop in new home prices and the still-lagging 6% drop in used home prices.  I know, people try to avoid saying "used" homes like the plague but let’s get real – if you can buy a brand new home for the same price as a used one, which are you more likely to buy?

Despite the generous drop in "existing" home prices from the 2005 highs of $234,000 to $208,000, inventory levels suggest we still haven’t hit a realistic price point.  Highlighting this point is the fact that, in California for example, foreclosures accounted fro 11.3% of all home sales last year, up from 3.7% in 2006 and a number that is accelerating rapidly.  In Nevada, 17.5% of all home sales were foreclosures, 4 times more than the previous year.  Foreclosures put severe downward pricing pressure on the market and the banks MUST do something to stem the rising tide of empty homes before they are forced look at a book of Trillions of dollars worth of overvalued "assets."

The government’s failure to address this issue is still the Sword of Damocles that hangs over the housing market.  There is no amount of readjusting of a mortgage on a $500,000 home that’s going to help you when the real value drops below $400,000 and your equity is just $50,000 – the shortfalls need to be addressed, this is why my mortgage industry bailout plan had 3 parts…

I want to thank everybody who did get my plan out to Congress and others as many of our talking points have found a voice in the mainstream but my most radical concept, for the US to invest $100,000 into homes (at a premium) of people who need it to lower rates, facilitate loans and ease the pressure on the housing market, seems too hot a potato for politicians to touch.

I have been speaking to several private investors about the concept but it faces complex legal issues and we really need the government to step up on this one and cut through the red tape.  Still, as with our steps that are already, at least in part, being adopted, it points to a problem that IS solvable – the question is whether or not our leaders are able to step up and lead and, sadly, that’s just not something we’ve come to expect so far this century.

Of course, the chance of THIS administration doing a single thing to address my other plan – to knock the price of oil down 30% in 3 simple steps, has ZERO chance of being put into effect but hopefully we can make that fact an election issue as this massive energy scam that is being played on the American people, as well as the rest of the World’s citizens HAS GOT TO STOP!

I don’t know what people buying GM were thinking this morning and, had I been around, you know I would have shorted the hell out of the "rally" but I missed that fun.  It’s amazing how the madness of the pre-market could carry through to the open like that.  After hours we got a better than expected report from AMAT, although they are still projecting a slowdown through the next quarter.

So results of this Testy Tuesday were inconclusive at best and we’ll see how the Wednesday theory holds up tomorrow as we look for the week’s highs to be retested.  With options expirations looming though, ANYTHING can happen and probably will.