Displaying items by tag: Asset Securitization Crisis

If you recall from my earlier rants on the Case Shiller index, one of its most glaring flaws is that it doesn't capture condo prices, which are a material component of housing stock in NYC and many major urban centers - see The Real Trend in US Housing Prices… It appears as if someone over there was listening, S&P now publishes a condo specific index, although that index too has many of the flaws of the CS single family index - see "Those Who Blindly Follow Housing Prices Without Taking Other Metrics Into Consideration Are Missing the Housing Depression of the New Millennium" and “Why the Case Shiller Index, Although Showing Another Downturn Coming, is Overly Optimistic and Quite Misleading!

Well, NYC, according to the S&P Case Shiller Condo index, is the only major US condo market that not only has firming prices but is actually increasing in price. Chatter and anecdotal evidence from the ground confirms this as developers and speculators are once again bidding up development land, lots and potential conversion properties.

The interactive version - drag the time line at the bottom of the graph to alter the perspective...

Summary: Except for a few metric blips borne from .gov bubble blowing, the housing market has been on a continuous nosedive since 2nd half of 2006. Anyone unfortunate enough to buy into the nonsense mis/dis/information styled propaganda of "This is the best time to buy" or the government's incentives to catch a falling knife with your bare hands (ex. tax incentives) have already been cut...

The residential real estate situation is still looking quite bleak. The downturn (actually, the continuation of the earlier downturn - they were not two separate events) that I forecast last year has come, and come with a vengeance. If we may reminisce, the mainstream media was overrun with optimistic housing forecasts, primarily as a result of some minor metric upticks born from incessant .gov bubble blowing. From my post of June 22nd last year - As I Made Very Clear In March, US Housing Has a Way to Fall

From Bloomberg, early in the morning you get the usual, inaccurate analyst chatter: Sales of Existing Homes in U.S. Probably Climbed on Tax Credit

Sales of U.S. previously owned homes rose in May to the highest level in six months as buyers rushed to beat a June tax-credit deadline, economists said before a report today.

Purchases of existing houses, which are tabulated when a contract closes, increased 6 percent to a 6.12 million annual rate, according to the median of 73 forecasts in a Bloomberg News survey. To receive a government incentive worth as much as $8,000, buyers must have signed contracts by the end of April and need to complete deals by the end of this month.

Credit-induced gyrations will make the underlying health of the market difficult to determine over the next couple of months. A slump in builder shares since early May signals investors are concerned the damage caused by the end of government stimulus, mounting foreclosures and unemployment will exceed the benefits of lower mortgage rates.

Then the actual report comes out: Existing Home Sales in U.S. Unexpectedly Fell to 5.66 Million Rate in May

There has been much discussion on the topic of inflation, deflation and hyperinflation. I, personally, am in the stagflation camp - basically the worst of both worlds. The evidence is plain to see to my virgin eyes: real asset prices are dropping through the floor (for four years now) while input prices (fuel, energy, supplies, commodities), food and the general cost to live (I have to phrase it differently since our government doesn't believe that this is true of the cost of

living) is going up.

It truly amazes me that the everyday guy and gal can be convinced that inflation is tamed as the things that they need to survive - food, warmth, clothing - cost them more month by month. I remember when I made the opposite argument in residential and commercial real estate three years ago. Ben Bernanke said "green shoots", yet real assets sat stagnant and empty. Reference Who are ya gonna believe, the pundits or your lying eyes?

Jim Roger, besides being a rather colorful figure,  has been correct on his commodities call over the last couple of years and he has been sounding the currency crisis and inflation call as of late. If anything, I give credit where it is due. I can't disagree with him on the currency front. This is what he had to say on CNBC regarding Social Unrest and Currencies:

We now know why I had my team specifically model in the fuzzy, yet quite relevant social unrest factors into our Sovereign Contagion Models. Egypt appears to have erupted, and I will illustrate the path in real time using the roadmap that we created to predict such an event igniting a powder keg much earlier last year. First let’s check out the headlines:

I spent the majority of 2010 and a decent portion of 2009 warning that massive debt simply does not just "go away", particularly after significant asset devaluation. The result of these two actions (once combined) is the evaporation of equity, the waning of value, and the ultimate destruction of capital. Sovereign nations and global financial institutions alike have been dodging, ducking, weaving, fibbing, lying, closing their eyes, sticking their collective heads in the sand and kicking the can down the road for 3 years now. This is not the end of the world, but it is the end of the massive amount of economic capital that so many swear is still abound. The longer we take to acquiesce and accept this foregone conclusion, the harder the pill will be to swallow - "can kicking" be damned.

And on that note, Bloomberg reports: Japan's Credit Rating Cut to AA- by S&P on Mounting Debt Burden

Japan’s credit rating was cut for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden. The world’s most indebted nation is now ranked at AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said in a statement. The outlook for the rating is stable, S&P said.

The yen and bond futures fell on concern the downgrade will push up the cost of borrowing for Japan, where public debt is about twice the size of gross domestic product. Vice Finance Minister Fumihiko Igarashi this week said the government must fix its finances to avoid a debt crisis that could trigger a “global depression.”