Thursday, January 14, 2010

McAlvany Weekly Commentary, Jan 13, 2010

What and When in 2010

January 13th, 2010

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Real Homes of Genius: A Foreclosure Process Lasting over Two Years in Pasadena. What is the Estimated Value of Shadow Inventory in Pasadena?

The deterioration of the housing market in California is stunning. If we look at the amount of distress in the state it would be hard to believe that the market is doing well yet some think the next boom is just around the next subdivided lot. Loans that were made at the peak of the bubble are now coming back to haunt the state in 2010. People forget that the bulk of the option ARM loans were made from 2004 to 2007. The problem goes beyond option ARMs, Alt-A, and even subprime loans. Many prime loans are now defaulting because homeowners are dealing with a weak economy. Today we are going to look at a vintage WaMu loan that is now finally heading back to the bank after two years of distress in Pasadena. (more)

US Will Hit 94% Debt to GDP Ratio Next Year, Surpassing the Level Where Debt Starts Reducing Economic Growth

Ambrose-Evans Pritchard notes:

Fitch expects the combined state and federal debt to reach 94pc of GDP next year, up from 57pc at the end of 2007. Federal interest costs will reach 13pc of revenues, meaning that an eighth of all taxes will go to service debt.

The figure of 94% is dramatic given that two top American economists – Carmen Reinhart and Kenneth Rogoff – wrote last month :

The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies… (more)

US Mint Sales of Silver Eagles

Maine may seize cottages to cover Medicaid

Maine's budget proposal would allow jointly owned camps or summer cottages to be seized to help reimburse the state for Medicaid expenses.

Many Maine families have owned and maintained camps or summer cottages through joint tenancy deeds, which permit them to keep the property within their families.

But as Maine Public Radio reports, the state would get the power to seize those properties in some cases. Health and Human Services Commissioner Brenda Harvey says the change would allow the state to be reimbursed for its costs if one of the property owners uses Medicaid funding to pay for long-term care.

Under present law, those properties can't count as an asset toward their expenses. (link)

US Postponed the Great Depression, Not Prevented It - Gerald Celente

December deficit nearly doubles

The U.S. government posted a deficit of $91.9 billion in December, nearly double the shortfall of a year earlier and marking the government's 15th straight month in the red, the Treasury Department reported Wednesday.

The shortfall brings the total deficit for the first quarter of fiscal year 2010 to $388.5 billion, up from $332 billion during the same period last year.

It was the second consecutive December the government spent more than it took in. In December 2008, the deficit was $51.8 billion. (more)

2.4 Million Job Openings for 15.3 Million Unemployed

For the most recent job opening data, according to the JOLT survey by the BLS, there were 2.4 million job openings in November of 2009. Now this might seem like a large number but it is not. Consider the fact that we have 15.3 million Americans that are still officially labeled as unemployed. And this is probably one of the main issues in this recession now. Even though massive layoffs have seemed to stop, it would appear that even less people are hiring today than back in March when the economy was falling into the economic abyss. What we can garner right now is the banking sector with record profits is now able to milk American workers even more since one of the biggest line items is labor and many companies are chopping this high cost item down.

This is rather obvious when we look at the actual job opening rate from the start of the recession: (more)

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