Yes, for those “old rockers” from the 70’s like me… That’s Uriah Heep, at their best!

OK… So, welcome to July! The last day of June was quite the volatile one to say the least! There we were waiting for the S&P/CaseShiller Home Price Index to print, and show that home prices were still down by quite a bit, when it did, it did, it printed at -18.12%… But! The media was all over that like a cheap suit, clamoring that the spiral down in Home Prices had come to and end! Which, may be true… But wouldn’t you want to wait to see if next month’s report confirms it? And… By the way… Since when does -18.12% fall in home prices beckon a rally? Yesterday, would be that answer!

So… The currency rally that was going on for a 4th day, was quickly wiped out, Ventures style… What? Don’t know who the Ventures are? Boy, you really missed a lot of great instrumentals! Any way, the euro sunk like the Titanic from a level of 1.4130 to 1.40… The iceberg that caused this mess was simply the fact that traders, etc. believe the U.S. is on its way out of this mess… Of course, they must not be Pfennig readers, because… They would have read yesterday how I detailed the monthly numbers and showed how even with the spiral down in Home Prices ending, it would take until 2011 before the Home Prices got back to zero!

But NOOOOOOO!!!! They couldn’t read it until late yesterday afternoon, because… Houston, we had a problem, with the Pfennig’s delivery yesterday… See, how I’ve mellowed? I’m not even going to rant about this… Instead, I’ll just remind everyone that whenever the Pfennig doesn’t show up in your email box, you can most likely find it to read on the Pfennig’s website, where you can view that “glamour shot” of me, and archives of the Pfennig! You can find it here: www.dailypfennig.com —- Hope that helps!

OK… Well… After the thrill is gone, and the dust settled on all that yesterday, the euro is leading the other currencies higher once again… Here are a few things that have caused a sell-off of the dollar overnight once again…

Not that I’m a fan of his… In fact, I don’t really care at all… But George Soros, normally has some interesting things to say, that end up being bang on… So here are a few one liners from a speech by George Soros yesterday… I believe this sounds very much like the things I tell you, have told you, and will continue to tell you…

SOROS SAYS SEES A “STOP-GO” ECONOMY GOING FORWARD
SOROS SAYS SELF-CORRECTING MARKETS IS A MISCONCEPTION
SOROS SAYS INFLATION FEARS WILL DRIVE UP RATES AS MARKETS REVIVE, CHOKING OFF GROWTH
SOROS SAYS CURRENT SUPER BUBBLE MADE POSSIBLE BY PAST INTERVENTION, EFFORT TO RESOLVE PREVIOUS BUBBLES
SOROS SAYS FORMER FED CHAIRMAN GREENSPAN REFUSED TO ACCEPT RESPONSIBILITY FOR STOPPING BUBBLES

And then there was Alice Rivlin, she of former Budget Director, and former Fed Reserve member, fame, had a few things to say to the House Budget Committee… Good stuff, but you have to wonder if anyone was paying attention! Here’s Alice!

“The long term budget outlook: impending
catastrophe”

“No one needs to remind this Committee that the outlook for the federal budget is worrisome indeed, scary. Long before the financial crisis and the current deep recession, this Committee was anxiously pointing out that current federal spending and revenue policies are on a risky, unsustainable course. Promises made under the major entitlement programs (especially Medicare and Medicaid) will increase federal spending rapidly over the next couple of decades, as the population ages and medical spending continues to rise faster than other spending. Federal expenditures are projected to grow substantially faster than revenues, opening widening deficit gaps that cannot not be financed.”

Hmmm… Sounds like me too! Is this “sound like Chuck day?” HA!

OK… Enough of all that, I don’t want anyone to get hurt, and I should have told everyone to put away the sharp objects before reading!

In other data yesterday, Consumer Confidence took a step backward, and fell in June to 49.3 from May’s figure of 54.8… Maybe those that were surveyed has just read Alive Rivlin’s talk to the House Budget Committee! Seriously though, this was a surprise, given the fat that the DOW gained 838 points in the 2nd QTR! At least, that’s what the Wall Street Journal said!

Today, we get a truckload of data starting with Challenger Job Cuts, and the ADP Employment Change. Those are followed by the ISM Manufacturing Index, Construction Spending, Pending Home Sales and Vehicle Sales… Not a lot of “major” data prints, but still stuff to check the pulse of the economy.

I was talking to my good friend, and an economics professor at a prestigious University, yesterday, and she mentioned that “this piece of data is questionable as to the inputs”… I said to her… “What piece of data isn’t questionable these days?”

OK… The “demand for high yield” was put on hold yesterday… But it will return, or at least I should say I think it will return… I don’t know for sure to say “it will”, so had better make the legal beagles happy… That’s funny! To say that they would be “happy” with me… They cringe, and get very uncomfortable every day when they read the Pfennig! HA!

But you know me… I’m just trying to provide Market Commentary, and other things that I think are important, well, important to me that is!

Like… A long time reader sent me a note yesterday, and said, “hey Chuck, did you see the story in the Wall Street Journal (WSJ) on Foreign Demand for Treasuries?” Well, I hadn’t and went immediately to the WSJ, and there it was… Tucked away in a corner so that no one would see it, if they weren’t looking for it… A story, by Min Zeng, titled, “Is Foreign Demand As Solid As It Looks?

These are the things that really TICK ME OFF folks, so stay with me on this… Basically, as we all know the U.S. Treasury Auctions have been getting “covered” easily recently… And foreign demand was listed as the reason… Which would have been the exact opposite of what I was saying about foreigners shying away from Treasuries…

Here’s the skinny… But I’ll let Min Zeng tell it, since he did the research and brought this to the public, even though it was tucked away so no one would notice!

“But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners.

The new definitions are deep in the arcane world of Treasury auctions. The change involves buyers who place orders through primary dealers. Those had been counted as direct buyers, but as of June 1 they were classified as indirect buyers, making that group larger than before. Because investors view that group as being dominated by foreign buyers, they assumed foreign demand was higher.”

>>>> OK, back to me… Ahhh, so that’s what’s going on… The Treasury “moved the goal posts on us”… As Sylvester would say… That’s despicable! Why isn’t someone in Washington D.C. shouting from the roof tops about this? Oh, that’s right, they’re all in cahoots!

This is HUGE folks… So… When the markets were thinking that foreign demand was increasing, it was actually, as I had said, shying away from Treasuries! Which, if the market participants are thinking that as long as foreigners are “buying into our deficit spending” then the dollar will be on terra firma, but instead are getting “duped” by the U.S. Treasury, you would think that someone would have some xplainin to do… Right Lucy?

And here’s another thing that just ticked me off when I read it this morning… Recall, last week I told you about how someone in China was dissing the talk that China’s stimulus was working, and that China would not be recovering, which sent the Aussie dollar to the woodshed until this news had passed? Well… Talk about egg on their face! Here’s the skinny…

China’s manufacturing expanded for a fourth month in June… The official Purchasing Managers’ Index rose to a seasonally adjusted 53.2 in June from 53.1 in May… And just like here in the U.S. any reading above 50 is thought to show manufacturing is expanding… The manufacturing index in the U.S. is around 44, so… We DO have the tale of two economies…

In one corner, we have the Chinese who have spent about $585 Billion worth of renminbi in stimulus, and are seeing the results… Whereas in the other corner we have the U.S. who have spent… More money than you can shake a stick at, and are not seeing green shoots like they “think they are”, instead they see dandelions, and weeds!

And the currencies of Australia and New Zealand have responded positively to this news from China…

And since I’m talking about China, might as well check on the other members of the BRIC’s (Brazil, Russia, India and China) Brazil’s real just posted its best quarterly performance on record, and India was Asia’s 3rd best performing currency, and if you throw out the two currencies above India that are illiquid, South Korea, and Indonesia, India was the best performing currency in Asia in the second QTR…

And the people over at the Royal Bank of Scotland (RBS) believe that the rupee won’t stop here… RBS issued a research report calling for a record 11% gain by the rupee in the 3rd QTR… I bet this news is music to the ears of my colleague on the “other” newsletter that I write… The Currency Capitalist… (to find out more: https://www.web-purchases.com/CUC/WCUCJ900/landing) My colleague, Ashish Advani, at the Sovereign Society, has been saying the rupee would be a strong performer for months now!

Here’s something you might want to be aware of, regarding the New Zealand dollar / kiwi… About $4.5 Billion in kiwi Uridashi and euro kiwi bonds denominated in kiwi will expire next month… I’m told that this is more than 4 times the size of a usual monthly expiration of bonds. This could very well be the hoola hoop the Reserve Bank of New Zealand (RBNZ) is looking for, given their wish that kiwi would weaken…

Royal Bank of Canada’s Currency guru, Sue Trinh, says that kiwi weakness could be beneficial to Aussie dollars, as the Japanese are leaning toward Aussie over kiwi these days…

Sounds about right to me!

And then there was this… OK, you all saw that Bernie Madoff was given 150 years in prison… Did you see that his wife, Ruth, reached an agreement with the authorities to return all of her wealth except $2.5 million that she got to keep? The thing that I still don’t get is how there aren’t more people going down with the ship on this one… I’ve been in the back office of brokerage firms, ran a margin dept, etc. and know this wasn’t just Bernie and his accountant… There was a lot of wool pulled over many eyes… And this will be the next step in the investigation by the U.S. officials… To see, who else knew what… If a whole stable full of people aren’t found to have known, then I’ll be surprised…

Currencies today 7/1/09: A$ .8045, kiwi .6410, C$ .8640, euro 1.4050, sterling 1.6430, Swiss .9220, rand 7.7675, krone 6.39, SEK 7.6337, forint 192.50, zloty 3.1390, koruna 18.3315, yen 96.90, sing 1.4475, HKD 7.75, INR 47.90, China 6.8330, pesos 13.18, BRL 1.9515, dollar index 80.11, Oil $71.27, 10-year 3.54%, Silver $13.67, and Gold… $931.20

That’s it for today… So sorry about the tardiness of the Pfennig yesterday, but I can’t do anything about it when we have technical difficulties… You know that I get up before the milkman, and the paper man, to get here to write it… It wasn’t like I was dilly-dallying around and didn’t get it done until 5 in the evening! HA! I see that my little buddy, Alex, got a 2nd and 3rd in backstroke and freestyle respectively at his latest swim meet. Really long time readers might recall when Alex’s older brother, Andrew was a highly decorated swimmer, and I would write about his swimming records… And their sister Dawn, also was a medal winner as a young girl! So… It’s now up to granddaughter, Delaney Grace to carry on the swimming tradition! HA! Cards lose again… UGH! OK… Time to try to get this out the door, hopefully it will go without a hitch… But whether it does or doesn’t it won’t stop me from having a Wonderful Wednesday… How about you?

Source: The U.S. Treasury Moves The Goal Posts

With the drop in home prices you’re house is probably over-assessed. And your property taxes are based on the assessed value. Meaning you are likely paying taxes on value that doesn’t exist.

What many people don’t know is that, with a little homework, you can appeal the assessed value. John F Wasik, writing in Bloomberg recently lays out the basic legwork you will need to do:

1. Make sure your property complies with the legal description – oftentimes the legal description will overstate square footage, number of bedrooms, etc., leading to a higher tax bill.
2. Look at similar houses in the neighborhood that have sold recently. Did they sell for less than your appraised value? Many assessed rates are based on three-year averages, meaning that your house is valued in boom times for these bust times. Once again, higher taxes.

Once this information is gathered, give it to your assessor. But be prepared to appeal to your local board. You can appeal yourself. Or hire a lawyer to do it. Either way, hopefully you’ll be on your way to keeping a little more of your hard-earned cash.

The U.S. housing market continued its tepid trek toward recovery as housing starts in May exceeded expectations, the U.S. Commerce Department said yesterday (Tuesday).

Housing starts soared 17.2% from April to May, nearly double the 7% increase economists were projecting, Actual housing starts reached a seasonally adjusted annual rate of 532,000, also well ahead of the 490,000 economists surveyed by the Dow Jones Newswires had projected, The Wall Street Journal reported.

Despite the unexpected month-to-month uptick, U.S. housing starts are still more than 45% below the pace of a year ago when the housing-start rate was 971,000.

And just because there’s been an increase in home construction doesn’t mean there’s been an accompanying increase in housing demand, Andrew Waite, a former institutional investor who is now the publisher ofPersonal Real Estate Investor magazine, told Money Morning in a telephone interview.

In fact, says Steve Hagenbuckle, managing principal of real estate private equity fund TerraCap Management, homebuilders may be continuing to construct new homes in the hope that a sale at breakeven – or even at a slight loss – will allow them to continue operation.

“We feel that builders need to keep building a minimal amount of product in order to keep the machine running, meaning their companies running,” Hagenbuckle toldThe Journal. “Even if they’re selling these new homes at break-even or even a slight loss, they need to do it to have the revenue in order to keep their doors open and pay their staff. That’s part of what’s really happening.”

The upshot: The continued construction in the absence of growing demand could translate into lower profits for homebuilders.

Builders could battle back by building cheaper houses, says Waite, the magazine publisher. Homebuilders operate on the so-called “33% rule,” which dictates that the land a house is built on must cost less than 33% of the retail price of the finished home’s sale price. Adding another 33% for construction and a margin of 33% or more attains that retail price.

In this economy where burned consumers are wising up, the cost of ownership of a home beyond its price may come back to haunt builders who had been constructing homes on cheaper lots in more distant locales – a living situation known in industry parlance as the “far-burbs.”

This allows the builder to build a cheaper house and meet the apparent pricing sweet spot,” Waite said.

As housing prices soared during the uphill side of the U.S. housing bubble, prospective homeowners often opted for cheaper houses in those more-distant communities – accepting the longer and costlier commute in return for a still-affordable large house, or a lower mortgage payment. But when housing prices swooned – and then plunged – these homes became less attractive to new buyers.

And as the economic slump turned into an actual recession, and job cuts turned many two-income households into single-income families, those commutes became too expensive to afford.

Often, the mortgages became too expensive, too.

The rise in May housing starts for single-family homes, which grew 7.5% to a rate of 401,000, could result in additional unsold homes for builders, according to JPMorgan Chase & Co. (NYSE: JPM) analyst Daniel Oppenheim, who called the gain a “modest negative from a supply standpoint.”

Even far-burb houses built on the distant locale “cheap-dirt” lots may go unsold, as the housing market in many areas continues to stagnate. Factors such as rising energy costs-particularly natural gas, which jumped 13.9% in May-could keep homebuyers on the sidelines as they balance their recession-riddled budgets.

One potential wild card is the real estate investor, who buys homes in order to rent them out. For consumers whose poor credit, strained budgets or ebbing cash flow keeps them from qualifying for a mortgage, even renting a far-burbs house is a sound second-tier option to an apartment. And for builders, selling to a real-estate investor is almost as good as selling to the actual tenant.

“The new house market is separate from the resale house market,” said Waite. “The question is, are they rentable to the folks that have just lost their homes because of fragile budgets partially brought about by energy and lifestyle costs of an extended commute?”

There are rays of hope in the housing market, due in part to the aforementioned fact that starts are significantly down year-on-year. Inventories in major cities in the western United States are shrinking, Money Morning reported earlier this month.

Source: New Home Starts Up, But is There Demand? ]]> http://www.contrarianprofits.com/articles/new-home-starts-up-but-is-there-demand/17998/feed 0 http://www.contrarianprofits.com/articles/rising-treasury-yields/17671 http://www.contrarianprofits.com/articles/rising-treasury-yields/17671#comments Tue, 09 Jun 2009 16:17:33 +0000 Chuck Butler http://www.contrarianprofits.com/?p=17671 Another Treasury auction today…  Spending habits come back to haunt reps…  Some healing in the currencies…  10 Banks to repay TARP today… And Now… Today’s Pfennig!
Good day… And a Terrific Tuesday to you! Well… I sure stirred up the hornet’s nest yesterday… Some people didn’t think I should express my opinion… But that’s OK… Here’s the skinny… I wrote yesterday about the farce that the jobs report was, and what a feeble job the media did in reporting the “real numbers”… I then threw something in the Pfennig that I don’t normally do, just to see what was more important to people… The fact that their Gov’t lies to them, or the fact that they don’t see eye-to-eye with me on the President…

Given the…

 1) Home prices and sales are seasonally strong in April, May and June due to tax refunds and the spring selling season.

2) A temporary reduction in the inventory of foreclosed homes. Team Obama’s Homeowner Affordability and Stabilization Plan has stemmed the tide of foreclosures. But even if it is hugely successful, Tilson and Tongue estimate that it might only save 20% of homeowners who would otherwise lose their homes.

Not only is the US housing still unstable, it is also setting up for three more waves of mortgages meltdown. According to Tongue and Tilson, the first wave of the mortgage crisis happened in late 2006, when speculators began to default on mortgages and borrowers began to commit (or became the victim of) fraud. The second wave happened in early 2007 when borrowers began to default due to mortgage resets. 

Despite the severity of these two waves of default, Tongue and Tilson reckon losses are “mostly ahead of us.” This is how they describe the next three waves of mortgage defaults: 

Wave #3: Prime loans (most of which are owned or guaranteed by the GSEs) defaulting due to job loss and home price declines (i.e., underwater homeowners). Timing: started to surge in early 2008 to the present.         

Wave #4: Jumbo prime, second lien and HELOCs (most of which are on banks’ books) defaulting due to job loss and home price declines/ underwater homeowners. Timing: started to surge in early 2008 to the present.         

Wave #5: Losses among loans outside of the housing sector, the largest of which will be in the $3.5 trillion area of commercial real estate. Timing: started to surge in early 2008 to the present. 

Tilson and Tongue are hedge fund managers with “skin in the game,” and they have no interest in promoting Washington’s green shoots agenda – two reasons why we listen when they speak.

They also correctly predicted in early 2008 that the housing crisis would get so bad that it would require large-scale federal government intervention – a call precious few in Washington or the mainstream press got right. 

In summary, Tilson and Tongue say we are only “in the middle innings of an enormous wave of defaults, foreclosures and auctions.”  

If they’re right, it means more pain ahead for banks and the muting of green shoots optimism as waves three, four and five of the housing crash impact the wider economy.

• The housing market showed further signs of bottoming in April, as pending sales of previously owned U.S. homes saw their biggest monthly gain in seven and a half years, the National Association of Realtors reported. The number of Americans signing contracts to buy previously owned homes climbed 6.7% in April, more than forecast and the fourth increase in five months. The report supports the case for a housing bottom made in Money Morning on Monday, where it was noted that housing prices are starting to move upward in western U.S. markets and should soon slowly begin to rise in hard-hit east coast markets.  “Based on what we just heard, we are now formally calling for the end of the housing depression and that we increasingly think that the housing market is beginning to turn up. All signs are pointing to a bottoming out now of the housing market” Bernard Baumohl, Chief Global Economist at the Princeton-New Jersey based Economic Outlook Group, told Reuters.

• Detroit’s ailing Big Three automakers, all reported that May sales in the U.S. fell less than analysts’ estimates while Toyota Motor Corp. (ADR NYSE: TM) and Honda Motor Co. (ADR NYSE: HMC) did worse than expected. Sales at General Motors Corp. (NYSE: GM) dropped 30% from last year, Ford Motor Co.’s (NYSE: F) sales fell only 24% and Chrysler LLC plummeted 47%, better than estimates, as shoppers returned to showrooms.  Deliveries at Toyota plunged 41% and Honda plunged 42%. Among Japanese carmakers, only Nissan Corp sales exceeded estimates, falling only 33%, Bloomberg reported.

• Microsoft Corp (Nasdaq: MSFT) said on Tuesday its new Windows 7 operating system, which will replace the unpopular Vista, will be available on October 22, well ahead of its original schedule and in time for the holiday shopping season, Reuters reported.  Windows 7 was originally scheduled to launch at the start of next year, but Microsoft confirmed last month that it would push up the schedule to allow sales during the year’s busiest buying period.

• The U.S. Federal Reserve Bank has successfully pulled the economy back from the brink, Dallas Federal Reserve Bank President Richard Fisher said yesterday (Tuesday).  The Fed official also said that conditions are “getting less worse” over time and the Fed needs to unwind its new, expansive credit programs as soon as it can, Reuters reported.  Furthermore, the U.S. central bank needs to make it clear it will not “monetize” the rapid expansion of U.S. debt, Fisher told a gathering of community leaders at a Dallas Fed event.

• Unemployment in Europe rose to 8.6% in April, up from 8.4% in March and 6.8% during the same period last year. Although the economic downturn in Europe is showing signs of slowing, the employment rate typically lags behind economic health.

• Pepsi Bottling Group Inc. (NYSE: PBG) Chairman and Chief Executive Officer Eric Foss is being promised a minimum $16.5 million in severance pay and stock benefits if PepsiCo Inc.’s (NYSE: PEP) takeover succeeds. He earned $6.1 million in total compensation last year. Pepsi Bottling, along with PepsiAmericas Inc. (NYSE: PAS) rejected a $6 billion acquisition attempt by PepsiCo, calling it “grossly inadequate” and “not acceptable.” Pepsi Bottling and PepsiCo are now locked up in a lawsuit, with PepsiCo accusing Pepsi Bottling of adopting a “poison pill” takeover defense that restricts its rights as a shareholder.

Source: Investment News Briefs Wednesday, June 3, 2009

Here are just a few statistics in the news lately from respected market mavens like the S&P/Case-Shiller Indices and the National Association of Realtors:

• The “average” price of homes in the U.S. is down almost 35% from the record highs of 2006.

• “Median” housing prices are down 19% in 90% of the major markets in the United States.

• Building permits were up 4% in April from last year, and homebuilder confidence increased from 16 to 18.

So what do these numbers mean to you?

Probably nothing.

“It’s like a weatherman who combines conditions in Nome, Alaska and Clearwater, Florida and issues an “average” national forecast of 45 degrees,” according to Andrew Waite, a former institutional investor who is now the publisher of a magazine focusing on real estate investing. “Real estate markets are by their very nature ‘hyperlocal. Averages simply don’t apply.”

Waite is the publisher of thePersonal Real Estate Investor, a glossy magazine that focuses on investors who buy houses or condos to manage for income or to fix up and sell for a profit, and he wastes no time in dismissing most of the “indicators” in use as useless and irrelevant.

As a onetime Wall Street venture-capitalist who subsequently joined Silicon Valley’s Sand Hill Road private equity crowd, Waite also understands how the Wall Street investment game is played – and, in the case of the U.S. housing market, the missteps many overly-anxious analysts make as they attempt to create a “one-size-fits-all” picture of the nation’s housing market.

And he would like you to know that all those gloom-and-doomers are overshadowing a real estate rebound that is already underway.

The Fractionalized Housing Market

The housing market is too fractionalized to put a finger on an “average” price, Waite says.  Real estate is segmented by individual neighborhoods, and is further subdivided by price points and such price-influencing factors as condition, cash flows – and even cap rates on rental properties.

To find the facts about housing prices for his investors, Waite compiles and verifies data directly from records kept by local Multiple Listing Services.  From sales records, Waite determines the inventory supply in months for major markets. That gives him the “hyperlocal” data that reveals an accurate picture of individual markets.

“The formula’s pretty simple,” he says. “As housing inventories shrink in real estate markets around the country, demand and prices go up.”

After examining the statistics for March, Waite thinks he sees a clear bottoming pattern, at least in some markets. If he’s right, the Western United States is already making a comeback and the ripples of resurgence will soon make their way to the Midwest and then to the East Coast markets.

What’s more, the improvement from year to year indicates the bottoming sequence will soon have prices on the rise.

Housing Markets in Western U.S. Have Already Bottomed

Remarkably, Waite’s research reveals the downtrodden Las Vegas housing market has already bottomed and is currently “balanced” between buyers and sellers.  Housing markets in Seattle, Los Angeles, Phoenix and Denver are on the move too:

• Phoenix’s MLS housing inventory is 7.33 months, down from 19.1 months last year.
• Denver’s current inventory is 5.59 months, down 35% from a year ago.
• San Diego’s inventory stands at a paltry 4.19 months, down 58% from a year ago.
• And Las Vegas’ inventory stands at just 6.25 months, down a whopping 64% from an inventory of 17.5 months in 2008.

In fact, Waite sees the trend on the West Coast as a leading indicator that the worst is behind us. In short, if you’re in one of those depressed markets where prices are still dropping, relief may well be on the way.

Here’s the “market-bottoming” sequence as he sees it:

The chart depicts the market for houses in the Western United States.  It follows the natural sequence of a housing market recovery through its progressive phases:  As the supply of homes drop, demand picks up. And as that demand picks up, prices first stabilize and then begin to rise.

Based on this research the housing cycle on the West Coast has already bottomed and prices will start to swing upward in the fall.  Eventually the trend will move from West to East and prices will move up broadly.

But the recovery will be painfully slow getting to certain markets where cities are still being hit with swelling inventories, which is likely to continue to put downward pressure on prices.

Housing supplies in Baltimore, for example, have increased 11% from March 2008, to 15.9 months this year.  Similarly, listings grew from eight months to about nine and a half  months in Houston, and from eight and a half months to 10 months in Charlotte.

But some of the hardest hit markets are clearly on the upswing.  Miami has slashed inventories from a staggering 52 months to 31 months, a decrease of 40%.  Rochester, New York and Boston have each dropped housing supplies by about 13% in the last 12 months.

Some realtors in Boston are even reporting that sellers are receiving multiple competing offers to buy homes for more than their asking price and buyers are entering counteroffers.

Fewer New Homes Stoke Demand

And it’s not just pre-existing home sales driving a rebound in the sector.  In October 2007, new home permit applications stood at roughly 800,000 nationwide.  A year later, in October of 2008, that number had dropped to about 480,000.

Since it takes about 12 months for buildout to progress from permit to finish — and with many builders halting construction altogether — Waite estimates only about 450,000 of those permits will actually translate into new homes that will hit the market in 2009.  And with new home inventories drying up, demand will start climbing as well.

In fact, declining new home inventories are already beginning to stabilize prices in hard-hit southern California, an area where prices were hammered by waves of foreclosures.

KB Home (NYSE: KBH) Chief Executive Officer Jeffrey Mezger said on May 4 home prices in Southern California have begun to stabilize, making his company’s new houses competitive with existing homes, including foreclosures.

“If you go to Southern Cal, as an example, we’re seeing a floor on pricing,” Mezger said recently in a conference call with analysts organized by J.P. Morgan Securities Inc., Bloomberg News reported. “We don’t see prices going down right now, which is a good thing, because then you can set a baseline.”

In March, Los Angeles-based KB Home, reported a narrower first-quarter loss as orders increased for the first time in three years.

And there are other positive signals.

• The median price paid for a home in six Southern California counties was $250,000 in March, the same amount as in January and February, according to San Diego-based research company MDA DataQuick.

• The National Association of Realtors says a total of 3.7 million homes were listed for sale nationwide at the end of March, down 10% from a year earlier.

• The supply of homes for sale in 29 major metropolitan areas at the end of April was down 3.6% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif.

That last figure defies normal trends — listings typically increase in April as for-sale signs bloom heralding the spring home-shopping season.  Since 1982, the average increase in April from the prior month has been 4.8%, according to Zelman & Associates, a research firm.

Tom Lawler, a housing economist based in Leesburg, Va., says the decline in listings “suggests that the bottom in home prices is much closer than many pundits believe.”

Still Looming: Foreclosures, Credit Crisis, And Unemployment

But Lawler says the future remains unclear because no one really knows how many homes in the foreclosure process will eventually land on the open market.  Estimates are that some of the nation’s largest banks currently are listing only about 60% of foreclosed homes.

Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), are the biggest owners of foreclosed homes, but they have only about 35% to 50% of those homes listed for sale at any given time, according to industry estimates.

And some foreclosed homes aren’t listed because they’re on the rental market, are undergoing repairs or are subject to legal action or other delays.

Barclays Capital PLC (NYSE: BCS) estimates that banks and investors owned 765,500 foreclosed homes as of April 1, up from 629,100 a year earlier. Barclays forecasts that this inventory will peak at around 1.3 million homes in mid- to late-2010, The Wall Street Journal reported.

The credit markets pose another obstacle to recovery.

There’s no doubt that banks have made it more difficult to borrow money.  And mortgages are far more expensive than they appear, especially for people borrowing large amounts or trying to refinance.

As previously reported in Money Morning, buyers can only get those rock bottom 4.75% interest rates you’ve been hearing about if they put 20% down, borrow $417,000 or less, and boast a high credit score (730 to 750).

And the days of “stated income” loans where you don’t have to document your earnings, and option adjustable-rate mortgages, where you could choose to pay less than the interest due, are long gone.

But while that’s true, it’s also true that mortgage lending is still one of the banks most important sources of revenue.

“Tight lending standards and the credit lockup is absolutely the limiting factor on how soon prices will recover nationwide,” Waite says. “But eventually, banks will loosen their purse strings if for no other reason than it’s their most efficient way to earn profits.”

But the cold reality is that skyrocketing unemployment remains a major threat to the recovery of the U.S. housing market.  The unemployment rate soared to 8.9% in April, leaving more than 5 million workers without jobs. Economists predict the national jobless rate will probably hit 10% by year-end even if an economic recovery kicks off before then.

Consumers who are unemployed cannot buy homes, much less pay for the homes they’re already living in. And even consumers who are afraid that they might be joining the jobless ranks are loath to take on the added risk – making them unlikely candidates to buy a new home either.

Bottom Line: Prices Don’t Matter if You’re Not Selling

But while the current news is full of talking heads espousing the latest “average” numbers about the downward spiral in housing prices, the basic truth is the vast majority of homeowners won’t be selling this year or next.

The typical house is owned for five to seven years, and only about 5% of U.S. housing stock turns over in a single year, meaning only 1 in 20 homeowners plan to sell this year.

And, as Waite points out, houses aren’t a tradeable commodity so there’s no reason why you should consider marking your home “to market” as the Wall Street bankers are being forced to do with  those derivatives they’ve been trying to dump.

In fact, if you’re not in a hurry to sell, chances are good your home will recover at least most of its pricing power in the next few years.

“Unless you have to sell now, you’re pretty much insulated.  If you sell in five years, chances are what’s happening now won’t have any effect on your selling price at all,” Waite said.

Source: “Hyper-local” Stats Show Housing Market Has Bottomed

• China will increase its annual oil refining volume by 18% over the next two years to meet expected long-term demand. China’s State Council also said that it would boost stockpiles and encourage petro companies to merge operations, Bloomberg reported.

• Lowe’s Cos. Inc. (NYSE: LOW) reported an analyst-beating quarterly profit and raised its full-year forecast. The No. 2 home improvement retailer cited improving consumer confidence and signs the housing market may be bottoming, Reuters reported.

• Toshiba Corp. has begun a $3 billion stock sale to raise capital after posting a record loss last year. Japan’s biggest semiconductor maker plans to offer 870 million new shares priced at a 3% to 5% discount to the stock’s closing price the day the sale ends, which may be as early as next week, Bloomberg reported.

• Seeking to pay back government loans, American International Group Ltd. (NYSE: AIG) is speeding up plans to list its Asian subsidiary, American International Assurance Co. Ltd., through an initial public offering, Reuters reported. AIG hopes the IPO will raise more than $4 billion, a small number considering the insurer has racked up a $180 billion debt to the U.S. government.

• President Barack Obama will announce today (Tuesday) a federal standard for greenhouse-gas emissions from vehicles, the first nationwide limit on pollution scientists say is triggering global climate change.  The emissions limit will be coordinated with new national fuel economy standards for cars and trucks, Bloomberg reported, citing people familiar with the matter.

• U.S. homebuilders confidence rose in May to the highest level since September, providing further evidence that the housing slump that started in 2006 may be closer to a floor. The National Association of Home Builders/Wells Fargo index of builder confidence rose to 16 from 14 the prior month, the Washington-based agency said yesterday (Monday), capping the first back-to-back gain since February 2008. A reading below 50 means most respondents view conditions as poor, Bloomberg reported.

• State Street Corp (NYSE: STT), the Boston-based custodial bank and asset manager, said it plans to sell $1.5 billion of stock and will also sell notes to help repay government bailout funds. The bank said it took a $3.7 billion charge to move some assets onto its balance sheet at a loss, and will said it will use proceeds from the securities sales to help repay a $2 billion infusion from the Troubled Asset Relief Program, Reuters reported.

• Oil prices rose sharply yesterday (Monday), as violence in Africa’s top crude exporter Nigeria and a fire at a key U.S. East Coast refinery revived concern about supplies.  U.S. crude for June jumped $1.98 to $58.32, while London Brent for July rose $2.51 to $58.49.  The gains came after Nigerian militants said they had blown up two oil and gas pipelines in the Niger Delta and would blockade waterways in the region in an effort to disrupt energy exports from the Organization of Petroleum Exporting Countries (OPEC) member, Reuters reported.

• An earnings surprise and a buy recommendation on a major U.S. bank sent U.S stocks skyward yesterday (Monday). The Dow Jones Industrial Average had its best day since April 9, zooming 235.44 points, or 2.85%, to close at 8,504.08 – as 29 of the 30 stocks that make up that closely watched blue-chip index rose. The Standard & Poor’s 500 Index recouped  more than half of last week’s losses, advancing 26.83 points, or 3%, to close at 909.71. Home-improvement retailer The Lowe’s Cos. (NYSE: LOW) topped earnings estimates – sending its shares up more than 8% — while one analyst recommended buying shares of Bank of America Corp. (NYSE: BAC), and set a $15 price target. BofA’s shares closed yesterday at $11.72, up 9.84% each. The Nasdaq Composite Index surged 52.22 points, or 3.1%, to end the day at 1,732.36.

Investment News Briefs Tuesday, May 19, 2009

American home prices just suffered their worst quarter in recorded history.

That’s the word from the National Association of Realtors today… the median home price fell 14% from the first quarter of 2008 to the first three months of 2009, to just $169,000. Of the 152 metropolitan areas surveyed by the NAR, just 18 registered annual price gains. Nearly half of all sales during the first quarter were foreclosed properties or short sales. A whopping 3.7 million previously owned homes are still on the market.

Is this rock bottom for U.S. housing? Ehh… probably not.

After staying flat for most of the ’90s, the Case/Shiller home price index more than tripled during a 10-year boom. If this “credit crisis” is what people say it is — a generational calamity, Bill Bonner’s “Depression with a capital ‘D’” — then a mere 26% retrenchment from the peak seems kind of… lame. Even the Dow managed a bigger fall than that.
If you’re a real estate opportunist (or just looking for a damn cheap house), you might want to check out Saginaw, Mich. The median existing home price there during the first quarter was a stunning $30,300, the lowest in the U.S. We won’t pretend to know what’s going on over there, but geez… they’re practically giving ’em away.

And if you’re also a newshound, like us, Saginaw might bring back the memory of this little love shack:

Back in October 2008, a Chicago woman famously bought this Saginaw home on eBay for $1.75. Ouch.
Foreclosures set a new record in April, says a separate report from RealtyTrac today. 342,000 homes were in some form of foreclosure last month. That’s one for every 374 homes in the U.S. — just in April. Over 1.3 million homes have now been lost to foreclosure since the housing correction began in August 2007.
A study out today shows that minorities are suffering the worst of the housing crisis. The homeownership rate among all Americans has fallen 1.7% from its 2004 peak. But for black households, the rate of ownership has plunged 3.8%, more than double the national average. Native-born Latinos have it even worse — down 4.6% from their high.

According to Pew Research, this rise and fall among minority homeowners was directly correlated with the popularization of subprime lending. “Blacks and Hispanics were more than twice as likely to have subprime mortgages as white homeowners, even among borrowers with comparable incomes,” reports The New York Times. (Queue the predatory lending lawsuits.)

And the only ethnicity to not see homeownership rates decline? Latino immigrants, with the lowest rate of all groups studied, have managed to maintain a homeownership rate of 44.7% since peaking in 2007. (Ugh… and queue the flood of hate mail into our humble inbox.)
The credit crunch has hastened the predicted demise of Social Security and Medicare. The Obama administration admitted yesterday that they now expect Medicare to run out of money in 2017, two years sooner than the Bush administration predicted in 2008. Social Security’s imminent insolvency was bumped up four years, to 2037. That’s all under the assumption, naturally, that the economy will recover by the end of 2009.

Even those already sucking the government teat got a dose of bad news. Social Security trustees now predict, for the first time in over 30 years, that recipients will not receive any cost of living increase next year, or in 2011.

In just seven years (2016), the Social Security trust will enter deficit. Eight years at the current pace and Medicare will be totally wiped out. When do you think we’ll start worrying about it… 2015? What a mess.
Last month’s budget deficit was the first April loss since 1983. We hit most of the details of the latest deficit yesterday, but felt obligated to raise this one point today: How can Uncle Sam possibly lose money during tax month? Only the U.S. government can “earn” $266 billion in one month (mostly our confiscated income) and still end up $20 billion in the hole.
All the above is weighing heavily on the market today, but the latest retail sales numbers are pushing traders over the edge. Retail sales fell 0.4% in April and were revised down to a 1.3% decline in March, the Commerce Dept. said today. The Street was expecting flat sales this month and no March revision.

Declines for both months proved to be the last straw for an already nervous market. After registering small gains yesterday, the Dow and S&P 500 raced down almost 2% at the opening bell this morning.
“Who’s surprised?” asks our currency man Bill Jenkins in response today’s retail “shock.” “Economists predicted a rise in sales from last month, but based on what? Here’s the bottom line: 3 million more people have been added to the lines of the unemployed since the beginning of 2009. I’m not sure where a person learns the following lesson, but apparently not in Keynesian Economics 101. So our readers can learn it here: Unemployed people spend no money. (Or at least they spend a lot less, if they have any sense.) Less spending equals fewer sales.

“As of the first quarter, we have already had record budget deficits, and Moody’s has announced that with the planned and continued spending, America puts at risk her AAA bond rating. What will happen to the dollar then? Dollar weakness is going to shock the world even more than today’s shocking sales numbers. Get ready to short the dollar aggressively.”

Need a hand trading currencies? Then definitely check out Bill’s Master FX Options Trader. His strategy is one of the only ways to profitably trade worldly monies without taking on loads of leverage. Details here.
But don’t short the ol’ greenback just yet. Today’s equity decline is doing wonders for the dollar. After cratering at a four-month low of 81.9 yesterday, the dollar index is back up to 82.5 this morning.
“One of the most exciting growth industries,” writes Jim Nelson, finding opportunity amid today’s sell-off, “is Far East Internet service providers. According to internetworldstats.com, 73.8% of Japanese and 76.1% of South Koreans are on the Internet. Even about one in every four Chinese citizens has Internet access. But too many forget that these superpowers aren’t the only places where you can make big money.

“Indonesia has the world’s fourth largest population, over 200 million people, but it ranks No. 16 in GDP purchasing power. Internet access is trailing in the region, with just 10.5% of its population online.

“But it’s the growth that impresses us. In 2000, only 2 million Indonesians had the Internet. That number is going to reach 25 million this year. That’s a massive growth rate… and serious investing opportunity.”

Jim just gave his readers a solid dividend-yielding play in this sector. If you’d like to get the details, be sure to check out his Lifetime Income Report.
Oil is holding up today, even though stocks are in the dumps. As we write, the front-month contract is actually up about a quarter from yesterday’s close, to $59 a barrel.
“Take your coal profits and run,” Bryon King told his Outstanding Investments readers late yesterday. “Coal is besieged. The coal industry wrestles daily with weak demand due to the U.S. economic slowdown. At the same time, the build rate for coal-fired power plants is at a historic low. Sure, in ‘ordinary’ times, coal might stage a comeback. But these are not ordinary times.

“The ‘rock that burns’ is under attack from many quarters of the environmental movement. Primarily, coal is guilty of the environmental sin of emitting carbon dioxide when burned — much more, pound for pound, than natural gas or oil. But it’s not just coal. Coal ash is also under attack, as are the many other byproducts of coal combustion (mercury, arsenic and much else).

“Is the anti-coal movement over the top? Yep. Is the anti-coal ‘science’ valid? Some of it is good; some is dramatically bad. Will the U.S. economy benefit from a precipitous rush away from burning coal? Nope. Will many Americans eventually look back and regret it if the current anti-coal frenzy prevails? Probably.

“But for now, I’m not going to get into the whole scientific and economic debate over the merits of the anti-coal claims. I’m just going to say that if you have a chance to make money in your coal positions, you should take it and move onto other ideas.”
It’s a great day to own some gold. The spot price has perked up $20 from yesterday’s low, now at just over $925 an ounce.
“You asked a question yesterday,” a reader writes: “‘Would you expect more credit card losses during this recession (aka the credit crisis) or the tech bust?’

“For what it’s worth (not much, as it is only my gut-feeling guess), here’s an extreme answer. I expect that the chart you’ve provided will hit 20-30% by the time it is all over, many years from now. Unlike any previous recession/depression, the use of credit cards today is at an all-time high globally, particularly in the U.S. As such, The Daily Reckoning Dicta No. 2 as provided by Mr. Bonner comes into play: ‘The force of a correction is equal and opposite to the deception that preceded it.’

“And with the marginal utility of debt approaching zero with each passing day, one may even be enticed to provide a higher number than merely 20-30%, but I do not wish to go that far into the gloom.”

The 5: Thanks for the forecast.

Source: The Housing Bottom, Doomed Entitlements, Retail Sales Suffer, Sell Coal and More!

If the credit-strapped suburban mall culture is truly on the rocks, how long do you think this can survive:

Lady Amaranth, Goth Temptress

Among our analysts, a debate brews at the heart of the current consumer conundrum:

“Cutting-edge apparel retailer Hot Topic,” writes Wayne Burritt, about the purveyor of goth clothing and lip-piercing paraphernalia, “is loaded with attractive fundamentals and technicals, while its call options offer an oversized premium. Hot Topic is a mall and Web-based specialty retailer that has a proven track record in the often-fickle teen and pop retail space.

“For the fiscal quarter that ended Jan. 31, sales jumped an impressive 8%, to $238 million, while profits shot up a whopping 19%, to $14 million. And that’s no fluke: For the year, the company’s bottom line surged a staggering 23%, to $20 million. In addition, sales in stores open at least a year — a key measurement of retail success — rose a solid 5% during the first quarter.

“No doubt about it: Those are solid fundamentals. I guess someone forgot to tell Hot Topic that we’re in the midst of a recession!”

“Hot Topic is in an industry with substantial and growing overcapacity,” argues Dan Amoss, our short side analyst. “This stock is hot because the market is myopically focused on a recent, fleeting success and ignoring reality. The reality, as you’re well aware, is ugly — especially in retail. And it’s extremely ugly for retailers that sell trendy clothing and accessories. The day of reckoning has arrived for this wildly overbuilt industry, and now it’s a brutal competition for survival.

“The long list of specialty retailers that will be fighting over what’s left of teenagers’ discretionary spending dollars includes Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, Charlotte Russe, Claire’s Stores, Forever 21, Pacific Sunwear, Spencer Gifts, H&M, Buckle, Wet Seal, Urban Outfitters and Zumiez.

“Hot Topic Inc. is a specialty apparel retailer with lackluster prospects for sales and earnings growth. Yet the stock trades at the rich valuation — especially for this market — of 23 times trailing earnings. HOTT stock is priced for disappointment.”

Hmmmn… if you put a gun to our head, we’d have to go short with Amoss. But then, that’s what makes trading fun and interesting, isn’t it?
Existing home sales fell 3% in March after a faux rally in February, the National Association of Realtors admitted this morning. Within the anemic annual sales rate of 4.5 million units, “distressed properties” accounted for over half of March’s sales.

The median price for an existing home is down 12% since last year, from $200,100 to $175,200.
The credit crisis has stymied a unique feature of American society. According to the Census Bureau, 35.2 million people changed their residence from March 2008 to March 2009 — the lowest number since 1962. And back then, there were 120 million fewer Americans.

The New York Times does a rather unremarkable job analyzing the trend under way, but they do point to a couple of interesting changes in American society since the 1960s: Home ownership rates have risen and owners are typically less likely to move than renters. The median age of the country has edged up… old people move less often than the young.

But probably the most telling trend under way: Two-income families have become more common and increasingly necessary to maintain a middle-class lifestyle. “Finding employment for both spouses in a new location can be challenging,” says the Times.
And in this environment, it’s getting more challenging all the time. The line of Americans seeking jobless benefits grew even longer last week, the Labor Dept. says today. Their gauge of continuing claims — that’s people seeking unemployment benefits for more than a week — rose to a new record 6.13 million. New claims inched up 27,000, to 640,000, last week — not a record, but close.

While these numbers look awful — and they are — they’ll be a nonevent in trading today… this latest report was right in line with Wall Street expectations.
The stock market suffered through a wobbly trading day yesterday. Major indexes started down around 1% on not-so-great earnings. After some big swings, all the way up to 2% gains, the Dow and S&P 500 ended back down where they began. They ended the day down 1%, more or less.

And today, they’re off to another finicky start. Tech stocks are jamming, lead by a blockbuster earnings report from Apple. But with the jobless numbers and housing data… we can’t blame traders for being a bit squeamish. Most indexes opened around break-even this morning.
“Is the bounce still bouncing?” Bill Bonner asks, no doubt with a longer time frame in mind. “We don’t know. But we don’t trust it. They say the stock market ‘looks ahead.’ So it is possible for it to see things we can’t see. On the other hand, what was it looking at two years ago? Didn’t it see the economy going over a cliff? Apparently not.

“But investors tend to believe what they want to believe. And what they want to believe is that the stock market has had its vision corrected and now sees a recovery.

“Our guess is that they are wrong on both scores. The stock market is just as blind now as it was in early 2007… and there is no recovery coming anytime soon. By our reckoning, this is not a recession… this is a depression. In a recession, the bull market formula still works. It just needs a little time to rest… catch its breath… work off inventories… and rebuild cash accounts. But in a depression, the formula stops working.

“The feds have responded with zero interest rates… and $13 trillion worth of bailouts and boondoggles. But the old magic doesn’t seem to work anymore. This time, the formula no longer works. Consumers already have too much stuff — and no way to pay for it all. They have no choice; they have to cut back. This is not a pause in the long cycle of increasing consumption, debt and speculation. It is a reversal of the cycle — with less consumption and less debt (more savings). This is a depression.

“If left alone, this cycle will see falling asset prices, falling bond prices and rising savings for many years. Stocks should sell down to levels where they are attractive again — at average P/Es below 8… 7… or even 6. And with dividend yields above 5%.”
The dollar is down today, thanks mostly to some positive data from the eurozone. The European purchasing managers index beat expectations and printed at its highest level in six months this morning, which accelerated the recent profit taking the dollar’s been suffering. The euro regained the $1.30 mark, which helped push the dollar index back down to 86. The pound goes for $1.45 today, and one greenback will still score you 98 yen.
That dollar weakness has helped gold inch out of its recent trading range. With a few exceptions, the spot price had been bouncing between $880-890 this week. This morning, it’s just below $895.
“I’ve been following the agricultural scene of late with more than the usual interest,” says Chris Mayer. “I don’t think investors have yet grasped the extent to which drought and the financial crisis are going to hurt this year’s harvest in just about everything.

“We’re already seeing some muted effects in certain items, like tea. Tea prices are set to surpass the all-time highs reached last year. Drought is the main cause. Yields in tea-exporting countries such as India, Sri Lanka and Kenya have all fallen. These three countries produce half of the world’s tea export.

“In Sri Lanka, the world’s biggest tea exporter, drought will push tea production to a seven-year low. The financial crisis also led farmers to be more conservative about buying things like fertilizer, which adds to the low-yield woes.

“In Kenya’s Rift Valley, another tea-rich region, drought will also lower production. Auction prices in Mombasa — the global benchmark — are already 15% higher this year. Usually, the key time of year for tea is March-May, so perhaps it is the canary in the coal mine as for what we can expect. But tea is just the beginning.”
British researchers have developed a stem cell therapy that cures blindness. Scientists at the Institute of Ophthalmology at University College London say they’ve found an effective therapy for age-related macular degeneration (AMD), the most common cause of blindness. According to sources at The Sunday Times, at its current trajectory, the therapy will be a routine one-hour procedure available to patients in about six years. Pfizer has announced a plan to bring the therapy to patients.

You may recall our series of discussions on stem cell technology earlier this year. Our technology analyst, Patrick Cox, is as bullish as ever on the future of stem cell technology, and we’re inclined to agree. For better or worse, it seems like these technologies are quickly coming to fruition.

For a full array of stem cell picks, including one that just today became a target of a record level of SC funding, be sure to check out Patrick’s Breakthrough Technology Alert… but do it quickly: There are just 13 spots left in this month’s offering.
Drug companies are going to have to do their bit before governments around the world completely crowd out productive capital investment. Case in point:

Mr. Brown unveiled a plan of unprecedented deficit spending and tax hikes for the U.K. yesterday. His plan for this year and next would exceed the combined borrowing by all British governments since the Bank of England was founded in the late 17th century.

The Brown government’s latest budget plans to pump over $1 trillion into the U.K. economy over the next five years.

Should that plan come to fruition, the U.K. ratio of debt to GDP would hit nearly 80% by 2013 — likely topping even the U.S.’ (Still got nothin’ on Japan’s debt to GDP of nearly 200%.)

And just as many fear here in the U.S., Brown declared the rich will be funding this public spending spree. His government ordered to hike the tax rate on the country’s top earners by another 5%, to a stunning 50% rate. While that breathtaking rate will confiscate half the income of those earning over $216,750 a year, it will raise enough extra revenue to cover only 3% of Brown’s trillion-dollar spending plan.
“I heard you are updating your book Financial Reckoning Day,” a reader writes. “I read the first edition and look forward to the new one.

“In the new edition, you will probably make the comparison of the U.S. and Japan. I hope you will also address the issue in a post by Eric Fry. Here is an except from his post. It is the critical question that must be addressed for your readers:

“‘So we think it’s fair — and prudent — to wonder what sort of war we are fighting. Is the stock market of 2008 like 1974 — a market that dropped 45% from its high and then advanced, more or less, for the next 30 years? Or is 2008 like 1929, a market that fell 40% from its peak, bounced a little, then erased another 50% of its peak value before hitting its ultimate low?’

“I think it is more relevant to compare and contrast 1929, 1974 and 2008 in the U.S. than making the comparison with Japan. I foresee a chart that lists several economic conditions on the left vertical axis and 1929, 1974 and 2008 along the top, horizontally. The chart would be followed by a narrative discussion of each condition and the situation that existed during the three periods. This would be an entire chapter (or more) in the book. How are the periods the same/different? What predictions can be made from this analysis?

“The above analysis will either strengthen his case or result in a modification of it. Will we end up somewhere between what happened in 1929 and 1974, or is 1929 the situation we should expect?

The 5: Given the earnings rout on the S&P 500, and government spending on overdrive, we suspect 1929 — or worse — is what you can expect. But as you suggest, we’ll endeavor to give a more analytical answer in the book.

Source: Analysts Clash, American’s Aren’t Moving, Stock Outlook, New Sector to Watch, and More!

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