March 14, 2010

WOW.

The New York Times finally talked to someone who knows what the hell they are talking about in the person of one Barry Ritholtz who spells the problem out in black and white for the sheeple in this article:

Great Time to Buy (Famous Last Words)

Where the first sentence says it all:

“IT’S a great time to buy a home.”

Read it. Understand why it raises my skepticism level to new heights with regards to any alleged recovery. If the national average for home prices drops the needed 15%, then in the hard hit states like Arizona, California, Florida and Nevada we have another 30-35% to go. I think Barry hits it spot on and if we allow for the deleveraging to occur at full speed a 30%+ drop in home prices is not only healthy for states like Florida but necessary. This means the great unwashed idiots who have escaped the first severe wave will now begin to understand what has been happening in the remainder of the nation and why the pain, while difficult, is necessary.  The challenge will be to see if our political leadership can accept eight quarters of negative GDP numbers to insure the system cleanses itself without hyperinflating to save their sorry butts.

My money is on “no” and they will institute desperflation.

God help us when that begins.

March 12, 2010

The news today is more of the same from the mainstream media, then again, I’m not a representative of nor party to the nonsense they spread. The true depths of where the real estate crash is heading is not then happy-happy joy-joy news about modifications increasing, since 70% of those fail within 12 months. It is not the stories from the Florida Association of Realtors proclaiming that some stabilization appears to have finally begun in our state since I’m involved in it at the grunt or ground level and know that the shadow inventory of literally block after block of empty homes tells a much more factual tale.

This story from DSNews.com:

REOs and Short Sales Account for 50% of California Home Sales

is a tell tale sign as to where reality and the truth in the hardest hit states probably does and shall continue to exist.

If 50% is the number in California, then you can be assured that is the same story for Nevada (probably worse), Florida and of course, Arizona.  The pattern will repeat  through many other states, especially those hardest hit by the unemployment problems sweeping the nation.

March 12, 2010

Gang, I’m not going to preach. It’s all there. Read the raw report. It is financial porn and indicative of how only a FOOL would invest in our financial markets.

I’ll quote my old friend, Steve Quayle:

If you don’t hold it, you don’t own it.

Links:

The “Repo 105″ Scam: How Lehman Fooled Everyone (Including Allegedly Dick Fuld) And How Other Banks Are Likely Doing This Right Now

Presenting The Lehman Bankruptcy Examiner Report

Gold up $2.80 just on the rumor….

I’m just sayin’…..

Obama to tap Yellen for Fed vice chair-source

March 11, 2010

Failed Bank Information Information for LibertyPointe Bank, New York, NY

Uh…..

Gang….

This has not happened since:

Washington Mutual

From ABC NEWS:

Regulators Shut LibertyPointe Bank in NYC

March 11, 2010

I’m going to have to catch the archives except for some of the last minute stuff due to my weird hours but gang, if you CAN listen to this man. Jim Rawles is a damned good man and one of the few members of the “Survivalist” community that GETS IT without reproach. The show starts at 0100 ET.

To find a station where you can hear it:

Coast To Coast AM

March 10, 2010

One of the obscure corners of the data universe I enjoy exploring just happens to be located on the Bureau of Labor Statistics are known as the Business Employment Dynamics whose purpose is defined as:

Business Employment Dynamics data are quarterly series of gross job gains and gross job losses statistics for the entire economy. These data track changes in employment at the establishment level, and thus provide a picture of the dynamics underlying aggregate net employment growth statistics.

The information here has approximately a two to three quarter lag but when it is updated, it provides a clearer more accurate picture of just what has happened and the trending of the employment picture as the quarterly data is received. In this particular case I have decided to highlight the severity of the problems our economy endured during the teeth of the economic downturn via the available information on their home page through the second quarter of 2009. This will capture the entire recession as defined by many of the political and Federal Reserve economists who reflect a beginning in December 2007 and finishing in June of 2009. Granted, the National Bureau of Economic Research (NBER) has yet to define this economic downturn as over as per their home page:

Last Four Recessions and their Durations

yet for the purposes of this entry, we shall use the Federal Reserve/BLS term. I have attempted to demonstrate via the graphs with data provided by the BLS to illustrate the impact on the typical small to mid-sized businesses along with a comparison for large employers with 1000 plus employees and the grand total to highlight the devastation to the private sector and how far a true recovery in employment really is.

A quick note and reminder about this graph from the BLS; the NBER has not defined the end of the recession, only the Federal Reserve and BLS thus far along with the politicians of course. The graph above demonstrates that as the recession peaked, just like the 2001 recession, private sector job losses peaked and began to roll over as the recession ended.  What is unique about this recession is that the severity of the drop in private sector gross jobs gains is so severe that any one issue or action economically or by the government imposing more burdens could restrict further private sector job expansion, thus leaving the quarterly gross losses at historically high levels and the millions of people on unemployment trapped by a system dependent on government largess.

This graph is the most disturbing one. While everyone seems to think that America will recover as a “service” economy the reality is that not one economic recovery, be it the Panic of 1907, the Depression of 1893, the Depression of 1920, the Great Depression, or recessions since World War II had sustained economic growth without the goods producing sector out pacing job creation within the private sector. There is this theory that the American economy will expand on census workers and burger flippers but without the construction industry and the associated sectors of the economy that supply this industry, then we will see a very short lived inventory replenishment bounce and the GDP will turn south rapidly at the end of this year.

The numbers do not lie, and as you can see we have regressed in the number of construction jobs some FIFTEEN YEARS back to the mid-1990’s level and there is zero indication that this will improve between now and next year. If not until 2030 as per the Moody’s report referenced in a post yesterday. Without construction any recovery will be short lived as Americans will not earn enough to maintain any semblance of the standard of living of the past twenty years much less service the civilian debt levels of the last ten.

The financial services industry has also experienced a lost decade already:

Thus the theory that the financial and service industries will lead this recovery is total fluffernuttery and based on a flawed logic. The earnings power within the American workforce has been greatly depleted and lessened by this recession (Actually a depression but that’s for history to determine) and probably will not recover for at least a decade if at all thanks to the total debt load and future obligations piled on top of the economy.  Why the alarm? To maintain profitability and in many cases just to survive, companies in the private sector began cutting employees down to bare bones levels and demanding more productivity from the employees and management to sustain the operations at the reduced levels of economic activity. This quote from the March 4, 2009 Report on Productivity and Costs:

Unit labor costs in nonfarm businesses fell 5.9 percent in the fourth
quarter of 2009, the result of productivity increasing faster than hourly
compensation. Unit labor costs decreased 4.7 percent from the same quarter
a year ago, the largest four-quarter decline since the series began in
1948 (table A).  The annual average index of unit labor costs declined 1.7
percent from 2008 to 2009, the largest decline in that series (table D).

sent up a red flag to me that we will see neither an increase in wages to surpass the annualized inflation rate and worse, further taxation and burdens for other necessities such as medical insurance and other benefits shifted from the previously shared relationship between the employer and employee over to the worker.  The graph from the same report illustrates the dramatic nature of this decline.

This will create further declines in the cost of labor which will be good for profitability and survival but at what cost for the unemployment picture? Let’s review the small business side of this equation and see what was happening at the “tail end” of the recession in Q2 of 2009, the latest data available from the BDM.

The average small sized business was still laying off people through the second quarter of 2009 and when the data later this year emerges about the third quarter, it will be interesting to see if the decline accelerated.

The same comment as above applies and this is the average sized business which generally will lead the economy out of a recession and into sustainable growth. Let’s take a look at the 1000+ employee data and totals to get some idea as to the drastic contraction we have witnessed in this recession:

There are where the major layoffs and bankruptcies happened with over 2.6 million private sector  jobs being eliminated. Thus why the total looks so horrid and the depths of the decline are almost Great Depression era like:

Until we see sustainable growth in the private sector, with the ability to absorb those workers lost in the manufacturing, construction, financial services and information technology arenas with a comparable level of compensation, this recovery will be short lived and somewhat shallow with 8% plus unemployment being the norm with only minor or temporary dips below the “official” U3 9.5% level as government activity ramps up to absorb the excess workers. At this point in time there is no incentive for employers to increase compensation thus the deleveraging process will be somewhat slowed for the consumer and the acceleration of defaults on unsecured and secured loans to consumers will continue.

March 9, 2010

While there are literally hundreds of news stories that I scan each day, every now and then the most innocent appearing of stories where you say “huh, that’s logical” or “wow, that’s important” which causes me to take pause. As I was reading this story from Bloomberg:

Eaton Vance Dumps Dirt Bonds as Florida Land Districts Default

a very important sentence jumped off of the page and made me reflect on to the depths of the economic crisis we are in. The fact that Eaton Vance was intelligent enough to liquidate a loser was important and their admission of an error in judgment says it all. It was this key sentence though which was extracted from the article:

Dumping the so-called dirt bonds at a discount was a better bet, the Boston-based Metzold said, than taking over 218 empty acres (88 hectares) from the project’s builder and waiting for a real-estate rebound that may not come until the early 2030s, according to a Moody’s Economy.com forecast.

This is the key sentence. If the “dirt” bonds are pretty much that, then what does that make the underlying municipal bonds in these communities where housing is still in decline and the future of economic development is totally dependent on an impossible demographic situation:

An aging, non-technically oriented baby-boomer group with poorly educated lower class citizens and lackluster educational and industrial development.

Municide was something I wrote about two years ago, where the declining revenues due to the housing and commercial real estate collapse finally forces cities and counties to either downsize or seek out bankruptcy. I fear that these communities will do so in return for guarantees and management by Federal overseers rather than make the hard choices themselves. It would appear that this issue, if not resolved by a rapid collapse of our currency and economic system, will be a festering wound that we will be forced to endure for decades to come if the Moody’s forecasters are correct with one city after another collapsing into less than viable ghost towns, dependent completely on a Federally based system of support and recovery.

March 8, 2010

From Bloomberg at 12:57 ET today….

Failed Banks May Get Pension-Fund Backing as FDIC Seeks Cash

Alarmed yet? Read on from the article:

March 8 (Bloomberg) — The Federal Deposit Insurance Corp. is trying to encourage public retirement funds that control more than $2 trillion to buy all or part of failed lenders, taking a more direct role in propping up the banking system, said people briefed on the matter.

Uh, I thought we were in a “recovery” and that the process of forcing the banksters to pay their insurance forward would be sufficient for their needs at the FDIC? Has Sheila lost her ever loving freaking mind? It was real estate investing and speculation that have most of these state pension funds in the crapper to begin with because the fund managers listened to the idiots on Wall Street and NAR who proclaimed proudly “Real estate never goes down and always goes up” (Even if it will take 50 years this time for it to go up) and my favorite “..don’t worry! We have sophisticated insurance instruments which will protect your pension funds from any major losses,” or words to that effect. Now we have the government acting as a dishonest broker to seek out funds with state manage pensions to speculate in banks that may not even survive and who’s viability is determined by the very agency which did nothing to predict this disaster in the first place, much less PREVENT IT.

Good luck with this project Sheila and Co. I have a name for your new project already:

“Operation Roll the Drunks and Dead”

Because what you are discussing here is akin to stealing a man’s wallet involved in a severe car accident or rolling a drunk passed out on the sidewalk outside of a bar. When will the American people rise up and tell these idiots that FAILURE IS AN OPTION and a necessary one at that. Obviously America has about 4000 banks too many otherwise there wouldn’t be the panic moves that Barney Frank and the FDIC seem to float about twice per week now.