The trade group said that sales of already existing houses fell a bigger-than-expected 5.3% in January, but buried within that report was one bit of data that may indicate the death-spiral in the U.S. housing market is nearing a bottom.

The indicator: The supply of housing declined again in January, continuing a trend that started during the summer.

“We’ll have to see if that trend continues. Inventory is already down sharply in the new home market, and if the existing home market can follow suit, it will eventually help stabilize housing,” Mike Larson, an analyst at Weiss Research Inc., told the Dow Jones News Service.

The U.S. housing market will play a key role – if not the key role – in the country’s economic recovery. A house is typically the single-biggest investment that most consumers make, which is why a house is also the typical consumer’s single-biggest expense.

Bursting Bubble, Growing Trouble

A housing bubble – burst by the subprime mortgage crisis – shoved the U.S. into a recession, and helped drag other key world economies along with it.

For housing prices to stabilize, supply and demand have to reach a balance, or equilibrium point. Right now, there’s still an estimated oversupply of roughly 1 million houses on the market. But the supply of available houses has now declined for several consecutive months.

So when sales also stabilize, there will be fewer houses available to purchase, which will cause housing prices to solidify and hasten the pace of a turnaround in both the housing market, and the overall economy, analysts say.

The number of existing homes for sale on the market decreased to 3.6 million in January, down from 3.68 million in December. At the current sales rate, it will take an estimated 9.6 months to sell down 3.6 million homes, the NAR report said.

In January 2008, there were 3.54 million homes for sale. The inventory peak was reached in July of last year.

“The drop in total inventory is an encouraging sign because the number of homes on the market has declined steadily since peaking in July 2008, and inventory is at the lowest level in two years,” Lawrence Yun, the NAR’s chief economist, said in a statement.

Dan Greenhaus, an equity-strategy-group analyst with Miller Tabak & Co. LLC., said that the “supply [and] demand fundamentals are working themselves out.”

But that market equilibrium has yet to be reached and, until it does, expect existing home prices to continue their fall. The national median existing-home price was $170,300 in January, down nearly 15% from last year when the median price was $199,800.

Source:  The One Trend That Hints at Housing’s Recovery

RBS analysts have warned clients to brace for a full-blown crash in the global stock-and-bond markets over the next three months as the conflicting realities of slowing growth and rising inflation paralyze the world’s major central banks – causing “all the chickens [to] come home to roost,” Great Britain’s Daily Telegraph newspaper reported.

The report, which first surfaced late Wednesday, raced across the Internet yesterday (Thursday), though it appears that European news organizations are giving it much wider play than their U.S. counterparts.

The predicted swoon would cause the U.S. Standard & Poor’s 500 Index – already down 15% from its trading high of 1,576.09 reached Oct. 11 – to nosedive all the way down to 1,050 by September. For the closely watched, broad-based U.S. stock index, that would represent an additional decline of 22% from yesterday’s close of 1,342.83 – and a total decline of 33% from its Oct. 11 apex.

This is the worst forecast of any investment bank survey followed by Bloomberg News.

“The Europeans, in general, tend to have much-more conservative banking systems and financial vehicles than we have here in the United States,” said Keith Fitz-Gerald, investment director for Money Morning. “They’ve been through centuries of economic and financial conflict. For that reason, they are much more pre-conditioned and predisposed to listen to major warnings like this one.”

The sell-off that RBS expects to deepen started last fall after the U.S. subprime-mortgage crisis turned into a full-blown credit debacle even as it took on a worldwide reach. Banks and brokerages have written off roughly $400 billion in assets. But that torrent of write-downs may get even worse: At a conference in Monaco yesterday, New York hedge fund manager John Paulson estimated that this amount will triple to $1.3 trillion – a reality that will clearly exacerbate the decline of the financial markets worldwide, Bloomberg reported.

The predicted “contagion” will spread across Europe and will afflict the emerging markets, including the fast-growing economies in Asia, the RBS research team wrote to clients in a June 11 report. RBS is Britain’s second-largest bank.

A sell-off of that breadth and magnitude would represent one of the worst bear markets the world has seen over the last century, and would clearly have implications reaching beyond stock-and-bond prices.

“A very nasty period is soon to be upon us – be prepared,” said Bob Janjuah, 42, a U.K-based credit strategist for RBS.

In the credit markets, high-grade corporate bonds would see their trading values soar, while their lower-grade counterparts would see their own values plunge, thanks to a “renewed bout of panic on the [global] debt markets,” the Daily Telegraph reported, citing key excerpts of the internal RBS report.

Addressing the fallout that RBS expects to see in the bond markets, Janjuah wrote to clients that he couldn’t “be much blunter. If you have to be in credit, focus on quality, short durations [and] non-cyclical defensive names.”

The credit analyst – who became an industry star after his grim warnings about the current global credit crisis played out as he predicted – also counseled clients that “cash is the key safe haven. This is about not losing your money, and not losing your job.”

RBS expects the U.S. stock market to rally into the early part of July, thanks chiefly to the boosts provided by the aggressive rate-cutting campaign that the U.S. Federal Reserve launched last September and from the tax-rebate checks that were initiated by the Bush Administration’s economic-stimulus plan. Those benefits will soon sputter and the real damage from soaring food-and-energy prices will finally become apparent.

Unfortunately, the world’s leading central banks may not be in the position to help out this time around. In fact, both the Fed and the European Central Bank (ECB) face a so-called “Hobson’s choice” as workers start losing their jobs en masse and lenders continue to cut off credit, the Daily Telegraph said.

Usually, the central banks would just cut interest rates or employ some other form of monetary stimulus to help their economies regain positive momentum. That’s not an option this time around: The soaring food-and-energy prices are already pushing inflationary pressures to levels that will destabilize stock-and-bond markets.

The bottom line is that the U.S. economy could end up with stagflation, the rare but hard-to-eradicate one-two punch of high unemployment and high inflation.

“The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation,” Janjuah said. “The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets.”

And Europe won’t dodge the bullet, RBS debt-markets chief Kit Jukes said.

“Economic weakness is spreading and the latest data on consumer demand and confidence are dire,” Jukes told the newspaper. “The ECB is hell-bent on raising rates. The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB.”

”What is being discussed here is absolutely within the realm of possibility and is a possibility that we’ve been discussing here in Money Morning for quite some time, now,” Fitz-Gerald, the Money Morning investment director, said in the interview yesterday. “And we’ve never wavered in that conviction. In situations like this one, the best offense is a good defense, which consists of an appropriately structured and diversified portfolio of holdings that emphasize stability and balance, and current income derived from global markets. That kind of portfolio may well weather this kind of storm much better than a U.S.-based portfolio in isolation.

“This report – and others like it – may be extremely unsettling to individual investors. But the historical record is unequivocally clear that the best profit opportunities come when everyone thinks the skies are darkest. Savvy investors at this point in time can take steps to help them avoid this even if the rest of the world sinks into an economic cataclysm.”

Source: Financial Fears Sweep the Globe After RBS Predicts Worldwide Stock Market Crash

Speaking via satellite at the Atlanta Financial Markets Conference in Sea Island, Georgia, the Fed chairman said he sees some signs of improvement in the financial markets, but noted that  “at this stage conditions in financial markets are still far from normal.”

In his speech, Bernanke outlined the steps the central bank has taken to help mitigate a credit crunch that was spawned by a historically weak housing market, and to offset at least some of the damage that’s been caused by a subprime-mortgage crisis that has riddled the worldwide financial-services sector.

In fact, Bernanke made a special effort to underscore the global nature of the crisis, and to emphasize the need for worldwide cooperation on solutions.

“The financial distress since August has also underscored the importance of international cooperation among central banks,” he said. “For some time, central banks have recognized that managing crises involving large financial institutions operating across national borders and in multiple currencies can present difficult challenges. Funding pressures can easily arise in more than one currency and in more than one jurisdiction. In such cases, central banks may find it essential to work closely together.”

And while he made it clear that part of the Fed’s role was to help maintain liquidity in the markets, Bernanke also preached the importance of balance, cautioning against extreme overly aggressive measures.

“Central banks should give careful consideration to their criteria for invoking extraordinary liquidity measures,” he said.

He warned that if financial institutions come to believe that the Fed is always standing ready to come to the rescue, then those same institutions and their creditors have “less incentive to pursue suitable strategies for managing liquidity risk and more incentive to take such risks.”

“A central bank that is too quick to act as a liquidity provider of last resort risks inducing moral hazard,” Bernanke said.

Views like that are a big reason that both Bernanke and the Federal Reserve have been criticized for what some saw as a government-sponsored bailout of strapped-for-cash investment bank, The Bear Stearns Cos. Inc. (BSC), in mid-March.

Bernanke’s speech didn’t address the aggressive rate-cutting campaign central bank policymakers launched last September. And he also made no mention of the next meeting of the policymaking Federal Open Market Committee (FOMC), which is set for June 24-25.

At its last meeting, the FOMC voted to lower the benchmark Federal Funds rate 25 basis points to its current level of 2.0%. It was the Fed’s seventh rate cut since September when the key interest rate stood at 5.25%.

Language in the FOMC statement that accompanied that rate-reduction order led some analysts to expect the Fed to remain on pause throughout the summer. That would provide the prior rate cuts time to work their way through the financial system. The belief that the interest-rate reductions were finished, for now, has helped the dollar, which has been weakened by the rate cuts, to rally.

(It must be because of America’s supposed symptomatic misogynism that the Ripley folks haven’t come calling yet…)

For one, there’s Hillary’s campaign manager, Maggie Williams. While hammering home the message that evil capitalists engineered the subprime mortgage crisis to bleed America’s poor and middle class, she herself raked in a cool $200,000 as a director on the board of a Long Island subprime lender until the company went belly-up last December.

(They served their underprivilegend clients with such niceties as prepayment penalties. Hillary now is against those. And who wouldn’t be. After all, those 200 grand have been banked and are hopefully FDIC-insured.)

Hillary is now proposing that taxpayers bail out not just dishonest subprime lenders but also less-than-honest borrowers who told their bank they could swing a $400,000 McMansion on a call center temp’s earnings.

Then, there is the whole NAFTA and free-trade thing. After suggesting that she gained chief executive experience by Yoda-like guiding President Bubba through all the major decisions of his tenure — NAFTA being one of the rational things he completed — she now has “long been a critic of the shortcomings of NAFTA”. Especially whenever she is addressing audiences of American manufacturing workers and unions.

But her husband’s determination to finalizing NAFTA back in the early 1990s is no good reason to not blame the free-trade treaty on evil Republicans. Nor was the fact that Hillary’s chief campaign strategist, Mark Penn, was meeting with representatives of the Colombian government to help promote the very free trade agreement that Hillary Clinton opposes. Until she fell behind in the polls. Then money, suddenly, did indeed have an odor.

But it’s not just that free trader in sheep’s clothes Mark Penn that can successfully separate the major campaign creeds from his very personal need to make a fast buck. Bubba, too, appears to be so divorced from core liberal creeds that he had no problems at all collecting $800,000 giving speeches for a Bogota-based group that supports the Colombia free trade agreement — the same trade deal she currently opposes.

Some speeches those must have been for 800 grand…

Hillary has a very good explanation for what would be the trigger, hammer and spark for years of liberal glee and moralist outrage had similar hypocrisy been committed by a Republican:

Click here to see some presidential poise in handling inconvenient questions.

Cynicist reprobates on the back benches might be tempted to look at this as the equivalent of predatory capitalist and engineer of many a financial crisis bleeding dry an emerging market, George Soros, publicly bewailing the cruelty and callousness of the world financial system!

(Ooops, my bad: He now does that for a living…)

Realists, however, will realize that applying the non-linear logic underpinning the liberal world-view, the world can be round or flat, depending what audience you’re addressing.

As long as you speak its language.

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