Curried Wealth Building
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April 24, 2010
Issue 93  -  Dirty Underbelly of 
the Housing Market
 
 
The housing market is coming back....Hooooooray!!!!  
 
 
U.S. new home sales jump 26.9 pct in March

WASHINGTON, April 23 (Reuters) - Sales of newly built U.S. single-family homes rebounded strongly in March to touch their highest level in eight months as buyers rushed into the market to take advantage of a homebuyer tax credit, a government report showed on Friday.

The Commerce Department said sales surged 26.9 percent, the largest advance since April 1963, to a 411,000 unit annual rate, breaking a four-month slide. February new home sales were revised up to a 324,000-unit pace from 308,000 units previously.

The rise last month could also reflect a snap back from adverse weather conditions in February. Analysts polled by Reuters had expected new home sales to increase to a 330,000-unit rate.

 
Not so fast.  What's that about people rushing to take advantage of the Obama house coupons?  The $8,000 coupons expire in April, but the house can settle in May or June, so the sales jump will continue until then.  At that point, unless the coupons are extended, the housing market is going to fall off a cliff.  These idiotic coupons are pulling demand forward which means there will be far less sales at some point in the future.  There is an excellent web site, www.kingworldnews.com, which has free interviews.  The host is very smart and has access to excellent guests.  He recently had Mark Hanson, a mortgage and real estate expert, on to talk about the current market.  Here are the big things I learned:
 
1.  8.4 million homes in foreclosure or behind in their mortgage payments.  This is a huge number and will weigh on the market for years.
 
2,  New foreclosures are outnumbering home sales.  No matter what the sales numbers are, if the foreclosures are higher, the market can't go higher for long.
 
3.  Of the home sales, 30% are short sales or foreclosures.  This number could easily double over the next two years.
 
4.  About 25% of all homes owe more than the house is worth.  The housing market depends on the lower market.  People must trade up to keep things running smoothly.  To do this, an owner must be able to pay off the house, pay the realtor, and have a 10% down payment.  If this could be called "effective negative equity" then 75% of owners are upside down.   If the down payment had to be 20%, this would jump to over 90%.
 
5.  Housing prices will go down 5-10% a year for a minimum of 3 years.  Just as I've been saying, and it could last 10 years.
 
6.   Making matters worse, home buyers FICO scores have risen from 620 to 690 over the last year.  This means that all the efforts to "expand" credit are failing miserably.
 
7.  50-70% of loan mods fail.   As I've said before, these people are in trouble because they probably shouldn't even have houses, giving them a new loan only delays the ultimate outcome of most of these "owners" becoming renters.  This picture shows what the fate of most of these people is going to be.
 
 
 
The whole housing market needs to be reset, but the only way to do that is to let things play out.  The government can't allow that as they have to "do" something.  My favorite time for congress is when they are out of session.  Some people have complained that congress is always on boondoggles and taking long vacations, but to me, while they are out of session they aren't passing laws, which mostly limit our rights and freedoms.  That's not a bad thing, it's a GREAT thing.   I wish they were on vacation all the time.
 
Until the housing market  picks  up, it is nearly impossible to get a true recovery.  As things stand now, things are only marginally better.  look at this chart:
 
 
This shows the status of all of the state unemployment funds.  As you can see, most are bankrupt.  Add this to the growing list of things the federal government is going to have to "bail" out.  Too bad the federal government is bankrupt too.  But hey, they can print.  How is that working:
 
 
 
This chart from the Ticker Guy is the same as one shown last week with GDP removed for a cleaner look.  We are now approaching 12% of GDP deficits.  Greece, which is supposedly in MUCH worse condition is only at 13%.  This is big trouble.  We are now in an untenable position and on a highway to bankruptcy.  Only a matter of when, not if.  People aren't stupid, and may be figuring the scam out:
 
According to a Reuters report, the reading on current economic conditions fell to 80.7 in April from 82.4 in March. The consumer expectations reading fell to 62.3 from 67.9, according to Reuters. Also according to Reuters, the one-year inflation expectation index rose to 2.9% from 2.7%

The latter is a problem, as it is well over The Fed's desired 1-2% range.

Nor is the expectations number from Reuters good.

The sentiment index fell to 69.5, which was wildly off expectations of 75 - that is, the market expected improvement and got serious deterioration instead.

 
There are things bubbling under the surface that predict trouble in the future.  GDP real growth turning negative is a huge problem.  That may be one reason for this:  (again from Ticker Guy)
 
If We're Dismantling Too Big To Fail...
... why are we creating a huge international bailout fund?
The Executive Board of the International Monetary Fund (IMF) today approved a ten-fold expansion of the Fund’s New Arrangements to Borrow (NAB) and the transformation of the Fund’s premier standing credit arrangement into a more flexible and effective tool of crisis management. The NAB will be increased by SDR 333.5 billion (about US$500 billion) to SDR 367.5 billion (about US$550 billion), representing a major increase in the resources available for the Fund’s lending to its members.
For a nation that claims to be ending "too big to fail" sticking our people with $100 billion of the cost of this new bailout fund - a fund that we allegedly will never need because we're going to fix the "too big to fail" problem - is rather interesting, no?
More importantly, what's the rush?
If the financial system has been "stabilized", if everything is ok, if the stock market is going up because the economy and financial system is healthy, why does the IMF suddenly need $500 billion, with 1/5th of it, roughly, provided by American tax money?
Or is the little ugly here that they know the problems haven't been and won't be fixed, and that at any time - all it takes is a trigger - there will be yet another rush for the exits, and this one no single sovereign government will be able to stop?
 
 
Think of this for a minute.  Half a trillion dollars quickly assembled into a "borrowing" fund???  And we supply 100 billion???  Where did that come from?  What are they worried about?  I don't have a good feeling about this.  Something must be bubbling up and ready to pop up into view.....glub...glub.
 
I suppose you saw this:
 

Associated Press

SEC employees watched porn as economy crashed

By DANIEL WAGNER , 04.22.10, 08:48 PM EDT

WASHINGTON -- An agency watchdog says senior employees of the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system.

SEC Inspector General David Kotz says in a memo obtained by The Associated Press that the behavior violates agency and government-wide ethics rules.

The memo reports 33 violations in the past five years - 31 of which took place in the two and a half years since the financial system teetered and nearly crashed.

It says one supervisory accountant looked at pornographic websites about twice a day and saved images on his SEC computer to view during work hours.

Gee, maybe now we know why these thugs on Wall Street are getting away with robbery?  No, not really, it's just all one big family.  They're mostly all in on the game.  This is a SYSTEMIC problem.  If you're really interested on HOW systemic, click on this web site which shows each and every bank that received TARP money....all 865 of them.  865!  Most banks are bankrupt.  The whole system stinks from top to bottom and with "journalists" like Maria Bartiromo on the case, things will NEVER get better:
 

Maria Bartiromo on Goldman Case: Where's the Fraud?

Posted Apr 22, 2010 04:23pm EDT by Peter Gorenstein

Add CNBC anchor - and author of the new book the 10 Laws of Enduring Success - Maria Bartiromo to the growing list of experts and market watchers questioning the Goldman Sachs fraud allegations.

"I've spent the last week on the phone with corporate lawyers, many of whom said they do not see the fraud. They cannot find the fraud in this case," she tells Aaron and Henry in this clip.

Bartiromo refers to the deal now in question as "unethical," several times in the interview, but hesitates to call it illegal. "We'll see about that," is how she responds.

Regardless of the outcome, Bartiromo believes the regulatory offensive signals "a more aggressive SEC" and could be the first of many lawsuits to come. If that’s the case, she speculates, investors will be facing a confusing future, and it could mean a "tough period for finance."

 
How can someone be so blind?  She's not.  She's IN on IT!!!  Her husband is a sleazy hedge fund operator.  She has a motive to lie and keep the system afloat.  Don't watch CNBC!!! 
 
Speaking of CNBC, did you ever hear from them that gold is the best performing asset of the last decade?  You haven't....hmmmmmm....I wonder why...   I'll continue to follow the smart money, thank you:
 
 
This is a chart from GATA showing the Russians accelerating their purchases of gold.  This is not by accident.   They know that gold will eventually reestablish itself as true money.  I'm including a lengthy letter from GATA which shows one guy's difficulty in getting delivery of ONE STINKING silver bar:
 

Dear Mr. Murphy,
Thank you for all you and GATA have done. I feel that we are seeing "light at the end of the tunnel" do largely to your efforts. I have been inspired by your work and to that extent, I have started to purchase silver futures contracts and been attempting to take delivery. My first test-run has begun on a mini-contract. The stories about HSBC trying to discourage people from taking delivery are true. Upon paying for the mini-contract and trying to take delivery, I was emailed the following by my broker.

Hi G

I just want to bring you up to date on where we stand with delivery. Your bar was delivered at the HSBC depository in N.Y. (where 90% of metals deliveries are made). The way that we have always been able to have metals sent out to the customer was once you received the delivery notice and the WDR was converted to your name we with the client called HSBC and gave them instructions on where to send the bar. The customer would wire in funds to HSBC to cover the processing and shipping charges through the USPS and the bar would be sent (assuming it was less than 75lbs.).

When I called HSBC on Monday to make sure they had the conversions and to make them aware that you intended to take physical possession they informed me that at the end of last year they changed their policies regarding sending the metals (please read to the end as there is good news). Basically they started following the same procedures that the full sized Comex contract follows that we had spoken about prior to you opening your account (bonded "armored" courier or customer picked up at the depository), and that they no longer send the metals by postal service. They explained that this was part of their broader effort to get out of the "retail" business and focus solely on the institutional side of the business. December was the last delivery cycle for silver so the March deliveries we received last week were our first attempts for customers like yourself to take physical possession since the change at HSBC. Not only was this a surprise to me and Myfuturesonline.com it also came as a surprise to our clearing firms (such as ADMIS) as HSBC did not notify anyone of this change. I was particularly surprised when I talked to my friend who is a V.P. at the exchange when she told me that she wasn’t even aware of this change.

I’ve spent the better part of the last day and a half trying to find out how we could make the arrangements to get the bar to you. The different options include:

1. You fly to N.Y. and pick the bar up at HSBC personally
2. We arrange to have your bar sent through bonded courier. The quotes I received were in the ball park of $5,900.00 for your single bar.
3. I spoke to a friend of mine that is a precious metals dealer who may exchange a bar for your warehouse receipt for a nominal fee. He will let me know definitively on Friday if he would be willing to do this.

Finally, the good news. I phoned some of my contacts at the other depositories and found that one of them, Brinks (who is one of the 5 exchanged approved depositories) is very willing to work with us to send the silver bar similarly to the way that HSBC use to in the past. The logistics are that instead of shipping through the USPS, Brinks uses UPS. And we would have to transfer the silver bar from the HSBC depository to the Brinks depository before sending the bar out. They assure me that this is a very easy process and should not cause much of a delay. They are sending me the details of how to facilitate this and we should know how to proceed by tomorrow. I apologize for this hiccup, but am confident that we can still have the silver to you before the end of the month. Please let me know if you have any questions or concerns.
Best Regards,
Robert

Then later on, I received more information:

Hi G,
I know that you were hoping to get the silver bar sooner than later. It appears that we have two choices for how to send your bar, either ground shipment or 2 day air. The cost for the 2 day air would be a total of about $480.00 and they do not deliver to residences with this option. I am getting the rates for the ground and will let you know what those cost would be, but wanted to make you aware of both options.
Regards,
Robert
Finally, over the phone I was quoted $350 for delivery by ground. I am going to keep looking into other ways to get the metal. This nonsense hasn't discouraged me, to the contrary, it has invigorated me (and caused be to purchase more futures contracts). I had thought of getting a Uhaul and picking it up, but the metal would be hanging out in the motel parking lot at night, which isn't ideal. I have also looked into taking a train with the metal from New York, but the passenger trains don't really allow for freight, just 2 carry ons and 3 checked bags (of no more then 50lbs each).

If you have any suggestions you might have on a more economical way of taking delivery would be appreciated.
Cheers,
G
Well, I hope I can get out of my paper metals before things explode. Here is the next chapter. Long-story-short, a 3 week delay because HSBC says they are doing an audit and need to get the metal back from Brinks. All this for 1 mini-contract. What a joke.
Cheers,
G

I finally have those rates and what we need to do next. To ground ship through the USPS the cost would be $382.00 to your address in Coupeville. To facilitate the shipment you will need to provide two signed letters, one to HSBC notifying them to release the bar to Brinks, and one to Brinks instructing them to ship your bar to your address. I have attached two sample letters that you can use. Once you have signed them you can scan and email them. If you would like me to be a liaison for you with the depositories you can email both letters to me and I will make sure that the exchanges receive them and aid in the transfer. If you would like to deal directly with the depositories let me know and I will send you the contacts of the individuals you need to deal with.

The two factors that will determine how long it will take for you to receive the shipment: 1. HSBC has recently done an audit of their vaults, during the audit they emptied several of their vaults and used Brinks vaults to store the metal. Your bar was included in this audit. Brinks has begun sending the metals back to HSBC this week. The process will take up to 3 weeks and should be done before the end of the month. As soon as your bar is back at HSBC they will release it to Brinks, so if your bar came back this week it will be shipped next week. If it’s in the last shipment it will not be shipped until the end of the month. 2. The USPS. Our experience has been about 10-14 days to Washington State .

Let me know if you have any questions and have a great weekend,
Robert

This is just beyond silly.  If silver and gold are SOOOOO plentiful, how in the world would it be so hard to get delivery?  Use your brain here.  There have also been 3 or 4 articles stating that the GATA people are wrong about gold and silver being leveraged 100 to 1, paper to real.  Who has all this time to write LOOOONG articles about this?  That's easy, people who benefit from the status quo and would be damaged by change.  Don't listen to these clowns, secure your own gold and silver in PHYSICAL form.
 
I'll close this week with a video from an artist that draws with both hands...at the same time!  Have a great week!