Chuck Butler (The Daily Reckoning):
As I checked the currencies throughout the day yesterday, I noticed that as the day went on, the non-dollar currencies were stronger, led by the Big Dog, euro (EUR)… But then late last night, and I mean late last night, I checked them, and those gains had been wiped out.

So, when I arrived here this morning, I had one thing on the top of my list of things to do, and that was to find out what happened… Come on, I said to myself, it had to be more than the “risk on, risk off” stuff that’s been hanging over the markets like the Sword of Damocles! But, when you get right down to the nitty gritty, that’s all it was… For once again, there was some data, or story, or rumor, that spooked the markets into believing the global recovery isn’t going to happen, and the “risk off” came into play.

So what was it that spooked the markets… Well… The only thing I can find was the report yesterday about falling Housing Starts that Chris told you about… Did you know that about 14% of US homeowners were either delinquent on their mortgage or in some stage of foreclosure? That is the highest rate since the group started collecting the data in 1972!

But there was something else that was announced as the day went on, that I think probably spooked the markets more than anything else… And that is a key House panel approved two amendments to a sweeping financial-overhaul bill that would give federal watchdogs new authority to audit the Federal Reserve, and would establish a fund of as much as $200 billion to help dissolve large, troubled institutions. Rep. Ron Paul (R., Texas) offered the amendment seeking to subject the Fed to audits.

The House Financial Services Committee voted 41-28 to approve the amendments, wrapping up weeks of debate but postponing a final vote on the bill until after Thanksgiving.

OK… More deficit spending for sure, and I’m positive that this was “hung on this bill” to audit the Fed as the only way it would get through the gauntlet.
Click here to finish Mr. Butler’s article at The Daily Reckoning.

Sales of existing homes rose for a third consecutive month in June to an annual rate of 4.89 million, which was better than the forecast of 4.84 million that most economists were expecting. May’s figure was actually revised down to 4.72 million from the original posting of 4.77, so the month on month rise came in much higher at 3.6% than the expected 1.5% increase. June is traditionally seen as one of the busiest months in the real estate market as families try to make the adjustment in between school years so it wasn’t exactly a surprise to see better than expected numbers.

Lower borrowing costs, foreclosure driven price declines, and tax incentives also contributed to these higher numbers. This is certainly good news to hear and I hope the bottom has already passed us by or is near, but as I mentioned yesterday, I won’t get too excited until unemployment gets back to a supportive level and the full backing of the consumer underpins this move. If anything, this may end up being a protracted bottom and a slow road to normalized levels.

We also had the weekly initial jobless and continuing claims released yesterday but was overshadowed by the positive housing numbers that came out. The initial jobless figure came in 30,000 higher than last week to 554k but continuing claims backed off a bit to 6.23 million from last week’s revision up to 6.31 million. Bernanke said earlier this week that job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending. With that being said, it still looks like we have plenty of breakers to get through before we reach the safety of calmer waters.

Today doesn’t bring us much in the way of reporting as the only data due out is the final printing of the U. of Michigan consumer confidence number for July. The preliminary figure was released a couple of weeks ago and fell more than forecast to 64.6 from June’s 70.8 reading. This generally isn’t a big market mover but its expected to settle in a tad higher at 65. This one is a tough call as the stock market has risen quite a bit in that time period but we’ll see if job and income concerns keep this month’s number grounded. Since this is all we get today, it will be interesting to see how much attention the markets give this report.

Just as we saw the Dow hit the 9000 mark for the first time since January and the euphoria of the housing market has gained momentum, well respected economist Nouriel Roubini, had a different take on things. In a report released today, concern was expressed that a perfect storm of fiscal deficits, rising bond yields, soaring oil prices, weak profits, and a stagnant labor market could blow the recovering world economy back into a double dip recession. He went on the to say that its getting more likely unless a clear exit strategy from the massive monetary and fiscal stimulus is outlined even before it is implemented. I guess the moral of the story here is to proceed with caution and buckle your seat belt because the ride could get bumpy.

Moving on to currencies, the Swedish krona and the Canadian dollar both posted 1% gains yesterday while the Japanese yen, New Zealand dollar, and Swiss franc rounded out the bottom. The two currencies at the top of the list had much different reasons for ending the day where they did as the krona traded higher primarily on the back of risk appetite. As investors feel more comfortable with buying riskier assets, the thinner traded currencies like the krona, benefit even though Sweden’s unemployment rate rose for a second month in June to 9.8%.

The Canadian dollar, on the other hand, rose to a 7 week high as the central bank said the recession is nearing an end brought on by higher commodity prices and consumer confidence. The central bank kept rates at the record low of .25% a couple of days ago and reiterated they will stay there for a while unless inflation becomes a problem. Since Chuck is across the border in Canada right now, it’s a perfect time to get our daily dose:

“I was reading the local paper the other day, and the business section had a big story on the Bank of Canada’s (BOC) Gov. Carney and how he vows he will intervene to keep the loonie from going higher… In the last two days since that story appeared, the loonie has done nothing but gain vs. the green/peachback… 91-cents it traded through yesterday! I can’t help but think that traders are beginning to believe that Central Bankers are imitating the boy who cried wolf… We had the Brazilian Central Bank, the Swiss National Bank, and now the BOC… They all are giving verbal warnings about traders taking their currencies higher…

The Central Bankers do this under the disguise of “we don’t want deflation in our economy” opting for the weaker currency to introduce inflation… I think this is all a smokescreen! I think this is a coordinated effort to keep their currencies from going hog-wild VS the dollar… The Central Bankers all know that the dollar is teetering, and without speed bumps we could see a mad exit for the door for dollar holders… Just what I think… Nothing more, nothing less… Just my thoughts… ”

Thanks again Chuck, its always great to get your insight. Since we’re already talking about central bank intervention, I saw a report today that has some looking for the Swiss National Bank getting back into the game. According to the Big Mac index, which is a purchasing power parity figure using the cost of a Big Mac as the measure, the Swiss franc is the second most expensive in Europe. Its just a fun little tid bit I thought would be good to break the monotony. Anyway, the Swiss franc is largely influenced by the euro and risk appetite so while the SNB may step in, there’s really no way to stop the moving train. As Chuck has said many times before, the markets have much deeper pockets than a central bank.

As I got to the office yesterday, the euro was hovering around 1.42 and climbed just shy of 1.43 to 1.4291 before we saw the profit taking drag it down to 1.4150 on my out the door. I saw a report where the euro had established a base at 1.4050 and calls to buy on dips, which is certainly a strategy that would be consistent with our views. As I touched on above, the Asian and overnight markets have run things right back to the levels from yesterday but as the European traders hand the books to those in New York before heading out for the weekend, the dollar is still getting sold. Don’t look now, but I see the euro at 1.4250…hopefully we can hold on to this and finish the week on a positive note. It looks like the euro is also getting some help from within as reports showed the contraction in European manufacturing and services slowed more than expected and German business confidence improved.

While I’m talking about Europe, we had some positive new come out of the UK as retail sales quadrupled the estimate and surprised the markets with a June gain of 1.2%. Year over year sales are actually up 2.9% and has economists looking for a near zero GDP figure in the second quarter. HSBC actually raised their forecast for the pound from 1.60 to 1.75 by year end 2010 and justified the call by saying the likelihood of an interruption in the asset buying program from the BOE could be as soon as next month. They also feel rates will rise before the Fed but this is a long way off and a lot can happen. Just like the US, I don’t see enough at this point to be comfortable buying this currency, but hey, we’ve been early on some calls too.

One of our newest multi-currency CDs, the Global Power Shift CD, has also been keeping the phones busy lately. With commodities and commodity based currencies leading the charge, it seems like we talk about at least one of them everyday, so I thought I would give it a mention. This CD combines the Australian dollar, the Brazilian real, the Canadian dollar, and the Norwegian krone into one instrument and just provides you with a little bit of everything…not a bad way to provide that hedge against a weakening dollar and gain exposure to commodities at the same time. Well, its about that time and I need to wrap it up so on to the big finish…

Currencies today 7/24/2009: A$ .8170, kiwi .6573, C$ .9214, euro 1.4230, sterling 1.6462, Swiss .9353, rand 7.7236, krone 6.2308, SEK 7.4710, forint 188.04, zloty 2.9538, koruna 17.9280, yen 94.86, sing 1.4407, HKD 7.7500, INR 48.2750, China 6.8316, pesos 13.1903, BRL 1.8991, dollar index 78.686, Oil $67.25, Silver $13.7850, and Gold… 952.86

That’s it for today…its your Friday!! I just wanted to send congrats toward St. Louis native Mark Buehrle, pitcher for the Chicago White Sox, as he became the 18th player to throw a perfect game…truly a remarkable feat. Our office has a team in a local kickball league so I wonder if our pitcher, Tim Smith, was able to match that performance…lol. It was a rough go this morning as the words just didn’t come all that easy for me but hopefully I was able to make some sense of it all. Alright, its really getting late so I need to get going here. Have a great Friday and a wonderful weekend…Until next time.

Source: Today’s Pfennig Friday, July 24, 2009

Employment will make or break this depression. Today, it’s not looking so good. 12.5 million Americans are out of work, and counting. Here’s the quick and dirty on the rest of the employment numbers this morning:

• The economy shed 651,000 jobs in February, right in line with Wall Street’s expectations. That’s the 14th month in a row of net job losses
• January and December jobs losses were revised down heavily. January was bumped down another 57,000 jobs, to a 655,000 loss. And the BLS altered Decembers by more than 100,000, to a 59-year high of 681,000 lost jobs. (Proof that these guys either put the numbers wherever they want, or that they aren’t very good at keeping track)
• Thus, over 4.4 million jobs have been lost since the official beginning of the downturn in late 2007.

The “official” unemployment rate is up to 8.1%, thanks to those revisions — a 25-year high. And you know that if the government is willing to cop to that number… it’s really much worse.

At the same time, over 7.8% of all U.S. mortgages are now delinquent, the Mortgage Bankers Association reports today. That’s the highest since at least 1972, when the MBA started keeping track. 3.3% of U.S. mortgages are in foreclosure, also a record.

The stock market is taking the news in stride… so far. Dow futures perked up about 50 points after the jobs number, and managed to open this morning up by nearly the same amount.

Then again, traders might just be taking a break from relentless selling. Major indexes were slammed yesterday. Most fell over 4%. There was the usual gloom, but traders got particularly depressed after China failed to go the way of I.O.U.S.A. and pump an extra trillion bucks into its struggling economy.

“The whole world now turns its weary eyes,” recounts Bill Bonner, “not to that bastion of free-market leadership, the United States of America, but to a country that has only had a quasi-free market in goods and services for less than a quarter century… a country still run by Maoists. It is to them that we supposedly look to save the world economy!”

The Dow’s 4% yesterday brings this year’s losses to 25%, just a bear’s hot breath away from the 33% slump the Dow suffered through all of 2008. The old lady finished closed the day at 6,594, a fresh 12-year low… and right in line with our initial forecast.

From its peak, that’s a 53% decline. As much as the media have worn out the phrase “The worst since the Great Depression” now it’s true:

Even before yesterday’s close, we were looking at the worst 41-day open in over 100 years.

In the Dow’s history, the closest to our own downer year was 1920, which registered a 14% decline. We’re in uncharted territory.

“In 1933,” Chris Mayer comments, “the Dow finished up 66% for the year! With all the similarities between now and the 1930s, let’s hope we see that kind of rally. It would be our last chance to sell down to some core positions that we’d be willing to hang onto through the march through the desert — should we follow form with the rest of the 1930s with a Great Depression 2.0.”

SPECIAL ANNOUNCEMENT: As you can see, we’ve been digging deep looking for what’s worked in other eras. Mr. Mayer does such a fine job with that kind of key research, we’re gearing up to launch a brand-new weekly service with him at the helm. It’s tentatively called the Crisis Recovery Report and yes, we’re thinking about sending it out… free… for as long as this unraveling crisis demands. That is, until we’ve reached the other side of this mess — if there is indeed another side.

We’ll let you know the details as they come. We haven’t even set up an official web presence for the report yet… but if you want to get on the early list for the announcement, send your request to: crisisrecovery@gmail.com

There’s was only one new high on the entire NYSE today: Sturm, Ruger… they make guns. The stock is up 71% so far this year and is at a 52-week high. Smith & Wesson is up 75% this year, too.

As confidence left the market yesterday, traders turned to gold. The spot price jumped about $30 from Thursday’s low, now at around $940 an ounce.

Oil managed to avoid the madness yesterday, too. The front-month contract took a brief dive during the session, but quickly returned to credit crisis highs just below $45 a barrel.

Even the mighty dollar couldn’t withstand the swell of selling pressure yesterday. After hitting three-year highs of nearly 90 this week, the dollar index has backed down to 88.3.

“A strange thing is happening in the currencies,” notes Chuck Butler. “While currency investors have had to live with this trading theme that rewards the dollar with every deep, dark, dangerous data report, this time it appears to be different. The dollar is getting sold on all corners overnight… traders looked at the size of the forecast for job losses and ran for the hills.

“The euro is leading the way higher, with a huge gain overnight… As I walked out the door yesterday afternoon, the euro was barely holding onto the 1.25 handle… When I woke up this morning with a wine glass in my hand — what wine, whose wine, where the hell did I dine? The euro was 1.2675! And we all know what happens when the BIG DOG gets off the porch to chase the dollar down the street… all the little dogs get to chase the dollar too!

“And Japanese yen was one of the best performers, which tells me that the risk takers were back!

“So… Is this a change in the trading theme? Well, one overnight rally doesn’t lend itself to a convincing argument of such. But it certainly points out that the dollar is vulnerable at the margins, and once we get back to fundamentals… watch out!”

In Washington, a whole new $500 billion legislation is in the works. Congresspeople are pushing through legislation this week that would allow the FDIC to borrow up to $500 from Uncle Sam’s coffer over the next two years. The FDIC’s war chest to rescue failed banks shrank from $52 billion to $19 billion in 2008. Chairwoman Sheila Bair recently said that fund “could become insolvent this year.” Thus — naturally — the House is moving to increase the FDIC’s fund more than 10-fold.

“Within six years,” Chris Mayer also writes, ending today’s issue with a megatrend worth your attention, “New York will no longer be among the world’s five largest cities. The new top five? Tokyo is No. 1, with a population (35 million) greater than all of Canada. Then follows Mumbai, Sao Paulo, Delhi… and Dhaka. Dhaka? Yes, Dhaka. It’s the capital of Bangladesh.

“‘All cities are cities of the moment,’ says Richard Wurman, the celebrated American architect. He is right. No city stays on top for long. In the year 1000, the most populous city in the world was Cordova, Spain. Beijing was tops in 1500 and 1800. London was the biggest in 1900, New York the biggest in 1950. Today, Tokyo.

“The pace of urbanization is particularly swift in China and India. More than 25 million people move to cities each year (see the chart below).

“Some of the numbers are hard to fathom. As U.S. Global Investors points out in a recent presentation, China will add more people in 15 years than the entire population of the United States. ‘There will be up to 50,000 new skyscrapers,’ the company notes, ‘the equivalent of building 10 New Yorks. There could be up to 170 new mass transit systems. There are only about 70 in Europe today.’

“This massive population shift has enormous effects on infrastructure spending. Trillions of dollars will have to go toward building power systems, roads, water and wastewater systems, ports and more. It’s like what the U.S. went through in the early 20th century — only on a much more massive scale… these changes will create enormous opportunities for investors that a previous generation could barely imagine.”

“Are you really as simple-minded as your slanted editorializing infers?” asks a reader. “In slamming Sen. Harry Reid for his opposition to the nuclear waste dump at Yucca Mountain and suggesting he’s only interested in spending ‘trillions’ for energy independence, you overlook the most basic requirement for gaining, then retaining, elected office: Make your constituents’ best interests your own. As a citizen of Nevada, specifically Summerlin, I can assure you that most of us who live within 100 miles of Yucca Mountain have made it crystal clear to the senator that we oppose this location as a depository for the nation’s nuclear waste.”

“Personally, I would favor a location about halfway between Baltimore and D.C. Would that be all right with you? We could save those trillions you believe the Democrats want to spend on ‘energy independence.’ (I assume you put the term in quotes so readers would understand that you sneer at the very concept of such self-reliance.)

“Your condescending right-wing babbling may find a ready audience among many readers of The 5, but certainly not all. I wouldn’t find your bias so objectionable if you had even a modicum of Bill Bonner’s charm and wit. Alas, if you haven’t found a way to express yourself as winningly as Mr. Bonner does by this point in your career, I’m certain it will never happen.

“Oh, by the way, I’m sure you find Sen. John Ensign — the current holder of the most conservative voting record in Congress — much more to your liking. Surely, he must get how important it is to dump the country’s radioactive waste on a deserted place like Nevada.

“Sorry to be the one to shatter your dream — Ensign can also read a poll, apparently. He, too, is opposed to opening Yucca Mountain to the nation’s nuclear poison. Heh.”

The 5: Wow… we give in. You caught us.

You did a masterful job at seeing right through our attempt to inform you about a coming investment opportunity in thorium and related companies. Alas, it was just a thinly veiled shot at Sen. Reid and the truly ridiculous concept of “energy independence.” Why on Earth would we want to be self-reliant? In fact, the only purpose of The 5 — hell, all of Agora Financial — is to undermine confidence in legislation, prop up foreign oil companies and promote right-wing agendas.

Phew, it feels great to get that of our chests. What a heavy burden it’s been… all these years. We had to write three books and make a full-length documentary on what a disaster Republican control of Congress and the White House was just to provide adequate cover. But now… you’ve exposed us. We thank you…we can finally end this ridiculous charade. Bring back the neocons! Get Rush on the phone!

We love your idea, by the way, about dumping nuclear refuse between Baltimore and DC. A little toxic waste would actually improve the place.

The national debt might hit the $11 trillion mark over the weekend. Hope you can still enjoy it.

Source:Jobs Rundown, Market Records, Coming Megatrend, a Special Announcement and More!

But US investors shrugged off the employment news. The rally continued…it has gone on for a month. The Dow rose again yesterday; this time it was up 298 points to 8,934. If the rally retraces 50% of the losses, it will make it all the way to 11,000. So, this trend probably has a way to go.

Oil rose too – back up to $43. And gold shot up $17 to $769.

Commodities, stocks, precious metals – almost everything was up yesterday.

One important exception: treasury bonds. The yield on ten-year T-notes rose to 2.76%…leading Bloomberg to report:

“Treasuries fall as US to sell more securities than expected.”

Watch those Treasury yields. Along with the dollar they are going to tell the tale of the NEXT big bubble – the LAST big bubble of the whole Bubble Epoque – a bubble in public debt.

All over the world, the feds are desperately trying to inflate their currencies. People want money. People need money. And they need to spend money.

From the US this morning comes news that a record one in ten homeowners is either in arrears on his mortgage or already in foreclosure. And everyday brings more dudes without paychecks. With no savings…and no jobs…people are squeezed hard. They can’t spend; they can’t even keep up with their mortgage payments.

So, the simpleton feds are giving people more cash and credit.

As everyone knows, what got them in trouble in the boom years was spending and borrowing. So what do the feds do? They borrow and spend more! Altogether, they’re putting up more than $10 trillion to try to reflate the world economy.

Where do they get that kind of money? First, they borrow it. Then, they print it. So far, borrowing has been easy. Because, while asset prices are falling, investors lend to government in order to protect their money. And with consumers not spending, prices fall – so there is no consumer price inflation to worry about.

In fact, food and energy – key components of consumer prices, though not of the core CPI – are actually falling. And when prices fall, consumers have an incentive NOT to spend, because they will be able to get what they want at lower prices in the future. That’s when a recession gets to be serious; it’s what happened in Japan. And there’s not much the feds can do about it, because they can’t push their lending rates below zero. So, the feds are sweating deflation – not inflation. They want to avoid it in the worst possible way.

What’s the worst possible way to avoid deflation? Print money. ‘Governments can always avoid deflation,’ says Ben Bernanke — but only if they’re reckless enough to risk runaway inflation. ‘And you can really make a mess of things,’ Gideon Gono might add, if he had any idea of what he was doing to Zimbabwe.

And it can happen suddenly. There are huge piles of cash – in T-bills, in money-market funds, in foreign central vaults waiting out the crisis. At present, the owners of this cash are more worried about deflation than inflation. But at some point – maybe in 2009…probably in 2010 – that will change. Borrowing and lending money will prove ineffective. Real inflation – otherwise known as the kind of money that comes from trees – will be the only option left. Eventually, the feds will get the hang of it…inflation will soar…investors will dump dollars and T-bonds…and the last bubble, in government debt, will blow up.

*** Our world tour continues. We’ve left the smells of Mumbai – spice, sweat and smoke – for the clean comforts of Melbourne, Australia.

But everywhere we go, there we are. We carry our doom and gloom with us, along with our toothbrush.

“Australia is no different,” says a colleague. “People lent money too freely and spent it too readily. House prices soared. Debt went a little crazy. But Australia is more like South Africa than like India. It’s a resource economy…so we went bust later…when the commodity bubble blew up. And when we went bust, we went bust hard. These commodity producers are down even more than the Nasdaq or the Dow. And now unemployment is rising. It was as high as 15% in the early ‘90s, the last time there was a slump in Oz.”

But don’t worry, dear reader. The feds “Down Under” are taking action. They’ve promised to send out a check – to qualifying parents – for $1,000 per child. Senior citizens will get $1,400.

Why the giveaways? Don’t be so thick, dear reader; it’s the worldwide financial crisis. The feds can get away with anything.

Sending out checks is a simple way of “reliquifying” the economy. Especially if you send the checks to poor people. They spend the money.

“TVs and hookers,” says Dan Denning. “They’re both bound to go up…”

Sending money to people probably works better than bailing out Wall Street. If what you’re trying to do is to encourage people to spend, the best thing to do is to put as much money in as many hands as possible. If the government wanted, it could send everyone a $10,000 check…or even a $100,000 check. Of course, the bigger the check, the more obvious the scam.

Nobody bothers to think about it – especially not in a crisis – but if they spared a minute to reflect on it, they would notice that it is nothing more than fraud and grand larceny. In order to put money in some people’s hands, they have to take it out of other people’s pockets. Or, just print it up. Either way, resources are stolen and redistributed. The rightful owners of the money get less of what they wanted. The beneficiaries – whether they are Wall Street’s insiders…or single mothers in the Outback – get more.

*** Sign of the time: a headline on the web this morning: “How to look gorgeous – on the cheap!”

Source: Hey Dude, Where’s My Job?

“Month-to-month, it gets consistently worse,” said David Blitzer, chairman of the index committee at S&P, noting that February also marked the sixth straight month that all 20 cities experienced declines. “The slope is one direction. There is no sign of a bottom.”

“If you expect a ‘muddle through’ economic recovery to persist over the next 12 months – and I do – then the Fed will have to stay on guard as housing attempts to establish a bottom,” says Eric Roseman in The Offshore A-Letter.

“This doesn’t imply the dollar must fall further. But it does suggest commodities and gold will continue to rally because most central banks will continue to print credit while they try to look concerned about inflation.”

Bill Bonner in The Daily Reckoning says, “The last two big bubbles – in residential housing and the financial industry – are deflating. Prices are going down for both assets. But inflation-sensitive commodities, most notably oil and gold, have soared. And now prices seem be working their up all along the chain… from the oil wells, to the shipping containers, to the Chinese sweatshops, to the shelves of Wal-Mart.

“What this means to central bankers is that they have to watch it. They can’t cut rates so freely… not while consumer prices are rising. Instead, the pressure will be on the other side – to raise rates.

“To the man on the street it means that he has to prepare to pay higher prices for everything.”

Home prices fell 3.1% in the first quarter compared with last year, according to The Office of Federal Housing Enterprise Oversight. This from AP:

Declines in the government index, which focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year, show the depth of the housing market’s troubles.

Prices fell in 43 states, with California and Nevada showing the biggest declines. Home prices dropped by more than 8 percent in those states. The government index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record.

Adam York, an economic analyst with Wachovia Corp., said Thursday’s data was unsurprising. “It was pretty widely expected that we would see declines this quarter and for some time to come,” he said.

“Look at a nationwide map of foreclosures, and you just might be looking at a hollowed-out future of exurban America,” says Dave Gonigam in The Daily Reckoning.

“The fact is that ever-rising energy costs will alter American driving and dietary habits with no government intervention at all. $7 gasoline (or $12, now that Robert Hirsch of Hirsch Report fame has repeated Charlie Maxwell’s $12 forecast on CNBC) will make the 40-mile one-way commute unsustainable.

“The map tells one part of the story that’s undoubtedly true: there’s a whole lot of fairly new housing stock out there, 40 or 50 miles from major cities, that’s being steadily abandoned… and may never be occupied again.”

“Three things about the decade-long inflation in real estate prices now imploding on both sides of the Atlantic continue to amaze us here,” says Adrian Ash in The Daily Reckoning UK.

“First, the sheer volume of foreclosures sweeping the former hot spots of America. Second, the size of house price ‘discounts’ about to hit the United Kingdom. And third, how-in-the-hell anyone ever thought subprime mortgages sounded like a good idea.”

According a report in the LA Times, the number of foreclosures in the state in the first quarter this year is up a staggering 327% from year-ago levels — an average of 500 foreclosures a day.

Ominously, the paper quotes research from DataQuick warning that the widening foreclosure problem could “spread beyond the current categories of dicey mortgages, and into mainstream home loans.”

Bill Bonner sees a paradox at work.

“The sky is said to be falling…but investors aren’t running for cover. The S&P is still selling at nearly 20 times earnings. In other words, a person who buys a share is willing to wait 20 years to get paid back out of earnings — if all remains the same. Twenty years is a long time in the stock market. Like dog years, companies measure time in quarters, not years. Only one of the original Dow companies — General Electric — is still on the list. So, a 20-year outlook is fairly optimistic.”

You may have to wait until May to see your economic stimulus check, but some retailers already have their sights set on how you will spend it.

Both Kroger Co., one of the country’s largest grocers, and department store operator Sears Holdings Corp. are already offering discounts and freebies to consumers who turn the rebate checks into gift cards.

Other retailers like Home Depot are launching advertising campaigns to helpfully suggest ways to spend those extra dollars.

“People have to eat,” says Mish Shedlock on his blog. “They are going to keep eating and now Kroger is effectively offering 10% off on food, something consumers were going to keep buying anyway. Where’s the stimulus in that?

“There are millions of homes headed for foreclosure over the next year or two. What is $1,200 going to do above and beyond providing one month’s rent.”

“That’s 1 out of every 33. In Nevada, it’ll be more like 1 out of 11.”

“The forecast is based on data from the Mortgage Bankers Association and the Center for Responsible Lending.”

In light of those figures, the accompanying forecast of 41 million homes losing value because of surrounding foreclosures, with a total loss in value of $356 billion, seems awfully conservative.

One other figure that stands out, and this one’s already in the rear-view mirror: Only three states did not experience at least a 20% increase in foreclosure starts in 2007 — Alaska, Montana, and Vermont.

One out of every 33 homeowners in foreclosure? Sorta reinforces my thinking that soon foreclosure will be a perverse badge of honor.

Not only will this bail out come from tax payer pockets, but it could also push up mortgage rates in the future as banks would have to worry about one more risk. The risk of government changing the amount owed on the mortgage. So what will they do to deal with that risk?

Keep interest rates higher.

Ah, I can’t wait to read about the next bailout…