Anyone who regularly follows me knows that I have been adamant in disagreeing with any who actually assert that the US has entered a housing recovery. The bubble was blown too wide, supply is too rampant, with demand too soft and credit tighter than frog ass. Today, the Case Shiller numbers have come out, and after a few months of showing price increases, have come around full tilt to reveal the truth - Reggie Middleton style!

From CNBC:

U.S. single-family home prices fell for a fourth straight month in October pressured by a supply glut, home foreclosures and high unemployment, data from a closely watched survey showed Tuesday.  AP  The Standard & Poor's/Case-Shiller composite index of 20 metropolitan areas declined 1.0 percent in October from September on a seasonally adjusted basis, a much steeper drop than the 0.6 percent fall expected by economists.  The decline built on a revised decrease of 1.0 percent in September and took prices down 0.8 percent from year-ago levels. It was the first year-on-year drop in the index since January.  The housing market has been struggling since home buyer tax credits expired earlier this year. To take advantage of the tax credits, buyers had to sign purchase contracts by April 30.

"The (housing) double dip is almost here [there was no double dip, just a result of .GOV bubble blowing] , as six cities set new lows for the period since 2006 peaks. There is no good news in October's report,'' said David Blitzer, chairman of the index committee at S&P.

Eighteen of the 20 cities showed weaker year-on-year readings in October and all 20 cities showed monthly price declines.

Unadjusted for seasonal impact [in other words, closer to the truth], the 20-city index fell 1.3 percent in October after a 0.8 percent decline in September.

To begin with, the Case Shiller index is highly flawed in tracking true price movement in a downturn such as this since said downturn is being led mostly by elements that the CS index purposefully omits. This means that those price drops that are being shown by the Case Shiller index are actually highly optimistic and seen through spit shined rose-colored glasses. The reality is a tad bit uglier. See The Truth Goes Viral, Pt 1: Housing Prices, Economic Sales and the State of Depression as well as Why the Case Shiller Index, Although Showing Another Downturn Coming, is Overly Optimistic and Quite Misleading!

I discussed my thoughts on the Case Shiller index (a complex statistical construct that excludes many of the factors currently dragging on the housing market) being quoted in the mainstream media as if it was the S&P 500, its shortcomings, the true state of housing sales value in America and what's in store for the near future.

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The newest home sale numbers are in. I was going to quote the various MSM news outlets, but ZeroHedge's Tyler Durden did such a superb job of congealing the essence of the various reports, I'll just quote him:

Stocks are up which means another fundamental data indicator must have missed expectations (following the earlier GDP miss). Sure enough, the NAR just reported November existing home sales, which came at 4.68 million units, a slight improvement to the almost all time lowest number posted in October (4.43 million), a miss to expectations of 4.75 million, and 27.9% off the cyclical peak of 6.49 million from November 2009, when the first-time buyer tax credit expired, and was shockingly not extended. The data follows this morning atrocious MBA numbers which showed a plunge of 18.6% in mortgage applications, and 24.6% drop in refinancings. But if you listen to Goldman, the recent surge in mortgage rates is actually beneficial for everyone involved and buy the f#&$ing dips! Sure enough, the ever cheerful Larry Yun had this to say: "Continuing gains in home sales are encouraging, and the positive impact of steady job creation will more than trump some negative impact from a modest rise in mortgage interest rates, which remain historically favorable." Um, continuing gains from all time record low levels? Also, the part-time job creation which is the only thing that is being created on steady basis is sure to be the ground for a fertile surge in home prices. And with that the sarcasm is off.

What is actually entertaining is to here quotes from NAR chief economists in the mainstream media (MSM). At what point do these guys lose credibility? The mere quoting of some  such as the NAR's Yun, or to a greater extent, his predecessor, is enough to permanently lose some valuable (as in more intelligent, higher paid) eyeballs to alternative media. To wit, as excerpted from Pay Attention to the National Association of Realtors and Their Chief Marketing Agent At Your Own Risk!:

On the topic of the National Association of Realtors, and their marketing gurus chief economists, I assert that BoomBustBlog’s regular constituency is much too bright to fall for the pumping of real estate by the economist of a national realtor association. For those that may be a little more trusting, or a little less mathematically inclined, I will walk through previous proclamations that have come from the NAR and their chief marketing strategists economists…

July 2008 Yun stated “I think we are very near to the end of the housing downturn,” Yun said (AP News).

Lawrence Yun, chief economist for the Realtors, said that the housing rescue bill should play a major role in helping the housing market to rebound. He said an especially significant feature is a tax break worth up to $7,500 for first-time home buyers who purchase between April 9 of this year and July 1, 2009. Yun estimated that up to 3 million first-time home buyers could qualify for that tax break, providing a significant boost to sales at a critical time. “I think we are very near to the end of the housing downturn,” Yun said.

As a point of reference..

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Our proprietary Sovereign Contagion model explicitly warned of Belgium issues as far back as June 4th, 2010. S&P is just now catching up, lowering its outlook on Belgium to negative.

S&P Lowers Outlook On Belgium To Negative Wall Street Journal

LONDON (Dow Jones)--Standard and Poor's Corp. lowered its ratings outlook on Belgium to negative from stable Tuesday, saying if the country fails to form a government within six months it could possibly face a one-notch downgrade. The ratings agency also affirmed the country's AA+ rating, the second-highest level, on a better-than-expected 2010 government budget outcome. However, the prolonged political uncertainty in the country poses a risk to its credit standing, "especially given the difficult market conditions many euro-zone governments are facing," it said.

The move is the first change S&P has made to Belgium's rating outlook since July 1992, when it first applied a stable outlook to the sovereign. The AA+ has been constant since first applied in Oct. 1988. The new outlook, along with the rating, puts Belgium on par with New Zealand in terms of S&P's ratings universe. "We view Belgium's political uncertainty as primarily evidenced by the prolonged delay in forming a federal government after the June 2010 general election, as well as the prolonged inability to form a key policy consensus across Belgium's linguistic divide," said Marko Mrsnik, credit analyst at S&P.

While on the topic... 'Belgium Has No Future' Spiegel Online

Six months after the general election, Belgium still has no new government. Flemish nationalist Bart De Wever, head of the country's largest party, wants to split Belgium into two states. In an interview that has caused a scandal in his country, he told SPIEGEL why the nation has "no future."

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Primarily Dealer Credit Facility

Note: Paying subscribers may download the fully scrubbed model containing all of the date output by the Fed regarding the PDCF as an Excel pivot table here, Primarily Dealer Credit Facility Analysis. Those who are interested in subscribing to our research should click here.

Yesterday, I illustrated how the Fed buried TARP 2.0 amongst a spreadsheet dump of over 70,000 trades and what amounted to probably a million cells of spreadsheet data distributed among a plethora files, see Buried Deep Within The Files That The Federal Reserve Released On Thier MBS Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!. Today, we will review another one of those files, dealing with the lending program that the Fed instituted for its Primary Dealer banks.

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About a year ago, after hearing so many pie-in-the-sky perma-bullish pundits and bankers say how banks paid every cent of TARP and government assistance back, I went on the following rant - 10 Ways to say No, the Banks Have Not Paid Back Their Bailout from the Taxpayer! Monday, January 18th, 2010:

Yes, some of the banks repaid TARP, with interest and warrants. Okay. The investment big banks (that were still in existence) were offered expedited financial holding company (bank) charters. That is why they didn’t fail, at least in part. So, running down the list, the banks paid back TARP. That’s a +, but….

    1. What was the value for bank charter, to get cheap access to the Fed’s funds? did they pay back this value yet? No!
    1. How about the payment of interest on the banks’ excess reserves at the Fed. Have the banks repaid that yet? No!
    2. The Fed and the Treasury have purchased hundreds of billions of dollars of Agency debt, Agency mortgage-backed securities (MBS) and related securities through Treasury purchase programs. Have the banks paid back the capital behind those purchases yet? No!
    3. How about the Term Auction Facility? Has the capital behind the benefits of that program been paid back? No!
    4. Then there is the Primary Dealer Credit Facility (PDCF), has this been paid back? No!
    5. Do you remember the Term Asset-Backed Securities Loan Facility (TALF)? Have the funds behind that been paid back? No!
    6. What about the PPIP? No!
    7. Hey, there’s the Foreign Exchange Swap programs (the currency swap lines, that saved not only our banks but out banks facing counterparties who were short on dollars), has that been paid back? No!
    8. There’s the Commercial Paper Funding Facility (CPFF), have the funds behind that been paid back? No!
    9. Most importantly, the opportunity cost of ZIRP, which hurts those who do not speculate (or have not speculated) with near free money! How do you pay that back to grandma and her .017% CDs?

Well, all rants aside, if you bothered to go through the mass dump of data that the Fed produced as a result of the Bloomberg FOIL suit, you will find that not only did the banks not pay back the massive amount of assistance that was given to them, they were actually granted more in the form of MOPTARP (MBS Overpayment Troubled Asset Repayment Program), and yes, I did make that up. How much more? Well, potentially more than the original TARP bailout! I'm getting ahead of myself though, so let's backtrack.

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From CNBC: Spanish Yields Climb at Auction, Pressure Continues

Spain was forced to pay a hefty premium at its final bond auction of the year on Thursday, in a key test of investor appetite for euro zone peripheral debt a day after Moody's said it may cut the country's rating.

The Spanish Treasury raised 2.4 billion euros ($3.20 billion), within the targeted range of 2-3 billion euros but disappointing some analyst who expected more debt to be sold.

Average yields on the two issues rose between 80 and 140 basis points from previous auctions of the same maturities.

That was a touch lower than what was expected according to trade in the secondary market ahead of the auction but analysts said the price paid by the Spanish government showed it remained at real risk of having to seek outside help next year.

"In the short term this should reduce pressure on the Spanish market, but I think when one looks at the bigger picture and considers the small amount sold, with low bid-covers, yet at a high yield, then it seems clear that peripheral markets remain under pressure and in need of support from policymakers," said Peter Chatwell, rate strategist at Credit Agricole in London.

Repeat "analysts said the price paid by the Spanish government showed it remained at real risk of having to seek outside help next year" - This was clearly illustrated and anticipated in Will Spain Default? The Answer Is Not Hard To Determine If You Take An Objective Look At The Numbers And Recent History! December 13th, 2010, to wit:

Spain is unique among the aforementioned group in that the amount of capital necessary to bail out this country is likely beyond the ken of the EU/IMF, and will likely assure a contagion effect. While it is true that Spain is not as indebted as the smaller periphery countries from a proportionate perspective, it is likely that it is not on a sustainable path and the efforts to make said path sustainable will may require restructuring/default, particularly if the smaller periphery states default.  Of course, Spain doesn’t necessarily see it his way, at least according to the mainstream media. From CNBC:

Spain Not Next in Line for EU Bailout: Finance Minister

Spain will not be next in line for a rescue package from Europe but a common economic policy is needed to support a single currency, Spanish Economy Minister Elena Salgado told BBC Radio on Friday.

This is a current snapshot of Spain as it stands now (excerpted from our subscription reportFile Icon Spain public finances projections_033010 and the online restructuring model - The Spain Sovereign Debt Haircut Analysis for Professional Subscribers):

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Having provided ample arithmetical evidence of the inevitability of a default of restructuring of the debt of

  1. Ireland (Here’s Something That You Will Not Find Elsewhere – Proof That Ireland Will Have To Default…),
  2. Portugal (The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog),
  3. and Greece (),

it is now time to turn to Spain.  Spain is unique among the aforementioned group in that the amount of capital necessary to bail out this country is likely beyond the ken of the EU/IMF, and will likely assure a contagion effect. While it is true that Spain is not as indebted as the smaller periphery countries from a proportionate perspective, it is likely that it is not on a sustainable path and the efforts to make said path sustainable will may require restructuring/default, particularly if the smaller periphery states default.  Of course, Spain doesn't necessarily see it his way, at least according to the mainstream media. From CNBC:

Spain Not Next in Line for EU Bailout: Finance Minister

Spain will not be next in line for a rescue package from Europe but a common economic policy is needed to support a single currency, Spanish Economy Minister Elena Salgado told BBC Radio on Friday.

This is a current snapshot of Spain as it stands now (excerpted from our subscription reportFile Icon Spain public finances projections_033010 and the online restructuring model - The Spain Sovereign Debt Haircut Analysis for Professional Subscribers):

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There are more and more "professionals" in the mainstream media stating that they expect European defaults. What is interesting is that as there is at least a minority of pundits that are facing this inevitable event. European (and American) equity markets are still chuggling the global liquidity elixir awash in the markets and moving ever higher. From Bloomberg: Shrinking Euro Union Seen by Creditors Who Cried for Argentina

Nine months before Argentina stopped paying its obligations in 2001, Jonathan Binder sold all his holdings of the nation’s bonds, protecting clients from the biggest sovereign default. Now he’s betting Greece, Portugal and Spain will restructure debts and leave the euro.

Binder, the former Standard Asset Management banker who is chief investment officer at Consilium Investment Management in Fort Lauderdale, Florida, has been buying credit-default swaps the past year to protect against default by those three nations as well as Italy and Belgium. He’s also shorting, or betting against, subordinated bonds of banks in the European Union.

“You will probably see at least one restructuring before the end of the next year,” said Binder, whose Emerging Market Absolute Return Fund gained 17.6 percent this year, compared with an average return of 10 percent for those investing in developing nations, according to Barclay Hedge, a Fairfield, Iowa-based firm that tracks hedge funds.

He’s got plenty of company. Mohamed El-Erian, whose emerging-market fund at Pacific Investment Management Co. beat its peers in 2001 by avoiding Argentina, expects countries to exit the 16-nation euro zone. Gramercy, a $2.2 billion investment firm in Greenwich, Connecticut, is buying swaps in Europe to hedge holdings of emerging-market bonds, said Chief Investment Officer Robert Koenigsberger, who dumped Argentine notes more than a year before its default.

No disrespect intended to these fine gentlemen and distinguished investors, but the default of several of these states is simple math. You cannot take 8 from 10 10 from 8 and come up with a positive number. It really does boil down to being just that simple in the grand scheme of things. I actually released a complete road map of Portugal's default yesterday (see ), and today I will walk those who are not adept in the area through it with simple graphs and plain vanilla explanations.

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You don't need a "wikileaks.org" site to reveal much of the BS that is going on in the world today. A lot of revelation can be made simply by having motivated, knowledgeable experts scour through publicly available records. I'm about to make said point by showing that the proclamations of the ECB, IMF, the Portuguese government and all of those other governments that claim that Portugal will not default on their loans is simply total, unmitigated, uncut bullshit nonsense.

If you recall, I made a similar claim regarding the Irish government and posted proof of such, see Here’s Something That You Will Not Find Elsewhere – Proof That Ireland Will Have To Default… November 30th, 2010.

For those who wish to skip my market commentary and feel you may already understand how to interpret the output of the restructuring model, go straight to the haircut analysis by simply clicking this link and scroll to the bottom until you see the live spreadsheet. For the rest, let's start by looking at it from the German's perspective as reported in Bloomberg: Germany Snubs Pleas to Boost Aid, Sell Joint Bonds

Germany rejected calls to increase the European Union’s 750 billion-euro ($1 trillion) aid fund or introduce joint bond sales, signaling its refusal to bear extra costs to stamp out the debt crisis. With European finance ministers gathered in Brussels today for their monthly meeting, German Chancellor Angela Merkel rebuffed pleas from Belgium and central bankers to boost the emergency fund to save countries such as Portugal and Spain from falling prey to speculation. “Right now I see no need to expand the fund,” Merkel told reporters in Berlin. She said EU treaties bar joint bond sales, which might force up Germany’s borrowing costs, the lowest in the euro area. European political discord pushed down bonds in Spain and Italy today, reversing gains made last week after purchases by the European Central Bank briefly eased concern about the spreading crisis. The ECB bought the most bonds in a week since June, according to a statement today. The yield on Spain’s 10-year notes climbed 9 basis points to 5.08 percent as of 5 p.m. in London. Italy’s yield rose 7 basis points to 4.47 percent. The euro halted a three-session rally, dipping 1 percent to $1.3283.

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