20% of mortgages are underwater

(CNNMoney.com) -- More than 20% of the nation's mortgage borrowers owe more than their homes are worth.

At 21.5% for the third quarter, it is a small improvement over the previous quarter, when 23.3% of loans were underwater, according to real estate website Zillow.com.

This so-called negative equity is a hotly watched statistic because it is a prime predictor of foreclosure -- second only to loss of income.

"It is the paramount challenge facing housing markets," said Stan Humphries, Zillow's chief economist. "We already have had record levels of foreclosure and, combined with high unemployment, negative equity is very toxic to the market." (more)

John Mauldin's Outside the Box

This week we look at some mostly bullish analysis from my friends at GaveKal for the Outside the Box. Much of the letter is devoted to looking at why Europe may fare better than many think (which will make uber-European bull David Kotok happy to read!). But be very sure to read the last page as Steve Vannelli analyzes the latest speculation about the Fed and quantitative easing. All those calling for QE2 may not actually do what they think it will. His conclusion?

"Once again, if there is no growth in broad money, no increase in velocity and no increase in Fed credit (hybrid money), then the only source to finance growth in the real economy will remain the sale of risky assets. When confidence seems to be stuck in a low plateau and talk of reigning in fiscal deficits is growing louder, a policy of undermining the value of risky assets couldn't be more counterproductive to growth."

I find myself in New York this morning (I once again did Yahoo Tech Ticker) leaving for DC later. Then sadly will have to forego Turks and Caicos, but that does allow for me to go to Baton Rouge for a one day course on the affects of the gulf oil spill on the regional economy, helicopter flyovers, etc. I will report back in this week's letter what I learn. (more)

10 Worst Places to Live

You don't need the U.S. Misery Index to tell you that things are bad in the U.S. Unemployment is near or at all-time highs in many parts of the country, foreclosures continue to happen at unprecedented rates and there are some very real indicators that we are heading toward a double-dip recession.

Some of us should count our lucky stars, however. In certain U.S. cities, life is much worse for residents than in other areas of the country. Using a variety of criteria, including unemployment rates, health data, the number of foreclosures, crime statistics, climate and other measures of misery, WalletPop came up with its unofficial list of the 10 worst cities to live in. This list is far from comprehensive, but there are some significant reasons why these cities made the cut. (more)

Some Thoughts on the S&P 500 and the U.S. Dollar Index

The following chart shows the weekly picture of the S&P 500 with the MACD indicator from July, 2002 and suggests a divergence between price and the MACD has been forming since late 2009. The tug of war between the bulls and bears has resulted in a market that has chopped back and forth since May. The "bulls" need to be more convincing with other than beginning-of-the-day gap openings to the upside, up Mondays and last hour afternoon rallies. The "bears" need to more convincing with follow through to downside. As a reminder, the seasonally tough period of September/October looms directly ahead. Fasten your seat belt and hold on. (more)

All evidence suggests recovery is far from normal

David Rosenberg, The Globe and mail
What passes as normal? Well, today, that is an interesting question.

Just reading the newspapers from the past few days, does “More Workers Face Pay Cuts, Not Furloughs” from The New York Times get you all hot and heavy over a new cyclical bull market? How about “Tech Gadgets Steal Sales From Appliances, Clothing” from the Wall Street Journal – hey, who cares if the spin cycle on the washer-dryer don’t work no more, I got me an iPad! Amazing.

Meanwhile, there is excitement in the air over the view that all we have on our hands is a pause that refreshes. More interesting, however, is how the bond market just isn’t buying it. Why should it when MasterCard processed transactions are flat from where they were a year ago?

Nothing we are seeing in this post-bubble credit collapse is normal. (more)

Stocks recoup losses after Fed

(CNNMoney.com) -- Stocks pared sharp losses to close only modestly lower Tuesday after the Federal Reserve took a cautious stance about the recovery.

After falling as much as 147 points earlier in the session, the Dow Jones industrial average (INDU) was off 53 points, or 0.5%, to close at 10,644.86, according to early tallies.

The S&P 500 (SPX) lost 7 points, or 0.6%, to end at 1,121.08, and the Nasdaq (COMP) dropped 29 points, or 1.2%, to close at 2,277.17.

As was widely expected, the central bank said it would leave short-term interest rates unchanged in a range between 0% and 0.25%. But the Fed gave its most bearish outlook in more than a year, saying the economic recovery is weakening. (more)

Side effect of the new frugality: Happiness

By STEPHANIE ROSENBLOOM

She had so much.

A two-bedroom apartment. Two cars. Enough wedding china to serve two dozen people.

Yet Tammy Strobel wasn’t happy. Working as a project manager with an investment management firm in Davis, Calif., and making about $40,000 a year, she was, as she put it, caught in the “work-spend treadmill.”

So one day she stepped off.

Inspired by books and blog entries about living simply, Ms. Strobel and her husband, Logan Smith, both 31, began donating some of their belongings to charity. As the months passed, out went stacks of sweaters, shoes, books, pots and pans, even the television after a trial separation during which it was relegated to a closet. Eventually, they got rid of their cars, too. Emboldened by a Web site that challenges consumers to live with just 100 personal items, Ms. Strobel winnowed down her wardrobe and toiletries to precisely that number.(more)

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