Wednesday, October 28, 2009
Waiting for the Next McMansion to Drop
Despite some tentative signs of recovery, the U.S. housing market remains vulnerable to further price drops—especially in areas where large numbers of mortgages are headed toward foreclosure over the next few years. The Wall Street Journal's quarterly survey of housing-market data in 28 major metro areas shows sharp drops in the number of homes listed for sale across the country. But the potential supply of homes is far larger because banks are likely to acquire significant numbers of foreclosed homes in some areas, notably Las Vegas, Atlanta, Detroit, Phoenix, Miami and other parts of Florida, and Sacramento, Calif., over the next few years.
Sales of those homes may depress prices further. By contrast, metro areas with relatively low foreclosure and mortgage-delinquency rates include Boston, Denver, Minneapolis, San Francisco, Seattle, Raleigh, N.C., and Portland, Ore., making them less vulnerable. (more)
Banks 'are a threat to economic recovery'
Britain's dysfunctional banking system could condemn the country to a stillborn economic recovery, a Bank of England expert warned last night. Adam Posen called on ministers to break up outsized banks and encourage healthy new entrants into the sector to secure a sustainable rebound.
He said the financial system was in the hands of a few big players, who deny businesses credit while engaging in unproductive speculation. (more)
Supply of Conventional Crude Oil is Very Close to It's Peak
After oscillating within a trading range for several weeks, the price of crude oil has recently broken out to a new recovery high. Now, you will recall that we have been firm believers of 'Peak Oil' since 2003 and we were expecting this bullish resolution. Look. Skeptics can say what they want; it does not change the fact that our world is struggling to maintain daily flow-rates. Whether you agree with us or not, the energy reality is that the supply of conventional crude oil is very close to its peak and no other fuel source can easily fill the supply gap.
Yes, various governments are now promoting alternative sources of energy and over the following years, we expect this drive to intensify. But those sources will provide too little, too late. So there remains, today, an unbelievable degree of denial when it comes to 'Peak Oil.' Most people simply dismiss it as a conspiracy. Others gleefully point to alternative sources of energy, whereas some believe that the vast improvements in oil drilling technology will save the day. Do not be seduced by these delusional hopes. (more)
Is It Really the End of the Dollar Carry Trade?
They don't ring a bell at the top, goes the old saying. But all we could hear last night was cow bell and more cow bell. Granted, it was part of the percussion section of a jazz/blues/funk band playing for the opening of a new art gallery on St. Kilda Road. But we're going to take the cow bell as a warning, and dedicate today's Daily Reckoning to it. But a warning about what? Sure, stocks, oil, and gold were all down yesterday and the U.S. dollar was up. But is it really the end of the dollar carry trade? And if it is, what happens next?
More cow bell!
We should back up a second. What is the dollar carry trade? It's the engine of bank profit growth this year. It's what's given the illusion that the financial system has recovered from its brush with death last year. (more)
Are You Middle Class? Maybe Not For Long
Many people write of the imminent destruction of the U.S. middle class (of which I consider myself a member) but few have explained specifically how this occurs. Understanding the mechanism seems important if I hope to avoid the fate of most of my peers.
An insight on this question came from an unexpected quarter.
A gentleman by the name of Fernando Aguirre, who posts on Internet forums and his blog as FerFAL, has written voluminously about his experiences as an Argentine citizen during and after the economic cataclysm that wracked his country in 2001. I first found a long forum post, and then a Google search of "FerFAL" revealed a larger web presence, including a recently published book (more)Fed Economist: "It Will Be Difficult for the Housing Market to Return to Normal"
The government, for all practical purposes, now controls the entire housing mortgage market.A senior economist at the San Francisco Federal Reserve Bank, John Krainer, said in a report that that government sponsored enterprise intermediation of mortgage lending will make it difficult for the housing market to "return to normal."
Krainer said that GSEs such as Fannie Mae, Freddie Mac and Ginnie Mae now guarantee over 80% of originations, while non-agency mortgage securitization and loans have pretty much dried up. (more)
U.S. bank chargeoff rate exceeds Depression: Moody's
The rate of loan charge-offs by major U.S. banks has exceeded those seen in the early years of the Great Depression as the credit crisis continues to take a toll, Moody's Investors Service said on Monday.
Bank charge-offs -- loans written off as uncollectable -- have reached $116 billion year to date, or 2.9 percent of outstanding loans on an annualized basis, Moody's said in a report. By comparison, bank charge-offs were about 2.25 percent in 1932, the third year of the Great Depression, Moody's said.
Charge-offs climbed to $45 billion in the third quarter from $40 billion in the second quarter and $31 billion in the first, Moody's said. (more)
The Super Rich are Laughing
The US has every characteristic of a failed state.
The US government's current operating budget is dependent on foreign financing and money creation.
Too politically weak to be able to advance its interests through diplomacy, the US relies on terrorism and military aggression.
Costs are out of control, and priorities are skewed in the interests of rich organized interest groups at the expense of the vast majority of citizens. For example, war at all cost, which enriches the armaments industry, the officer corps and the financial firms that handle the war's financing, takes precedence over the needs of American citizens. There is no money to provide the uninsured with health care, but Pentagon officials have told the Defense Appropriations Subcommittee in the House that every gallon of gasoline delivered to US troops in Afghanistan costs American taxpayers $400. (more)
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