Update on Everything
Market Update 8-7
by Edgar J. Steele

April 4, 2008  


Latest Nickel Rants:
4/1/08 - Cogito, Ergo Ben  mp3 audio
3/27/08 - Mr. Mental Explains: Everything You Need to Know About Economics   mp3 audio
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My name is Edgar J. Steele.

Some keep asking why I harp so much on economics lately and when I will get back to the purely political and borderline-revolutionary stuff. My response: This is the purely political and borderline-revolutionary stuff.
So, here (the last item below) is my years-old prophecy concerning the drop in home values come to pass in greater Mexico North. From $701k to $229k (and that is just the current asking price) in two years. That's a reduction of 67% in those two years. Reduce that $229k further for the inflation erosion of about 30% in those two years (now pushing 20% per year) and you get $160k in 2006 dollars, which is 23% of $701k.  For extra credit, you do the math as to how much more of a discount must be taken before these houses reach 10% of their 2006 value. In fact, adjust for land value and they already are there. Rip out the copper pipes, just as our friendly "guest workers" do at night (just another job that we won't do, of course), and they go to zero.
It's worse in southern Florida, I hear. Cruise eBay's vehicle listings, paying attention to the Florida listings, especially, and see what the asking price today is for some formerly very high-priced road machinery.
Meanwhile, our fat-cat elected "leaders" argue over whether we have slipped into a mere recession. I wonder how things would look to them while dangling from the end of a rope.
As I have grown fond of saying: Better you should worry about those things that I have predicted, but which have not yet come to pass.
To those who only recently stopped laughing at my predictions: How can I have been so right about everything - as in everything - so far, yet you continue to insist I am wrong about what is coming (and it is much, much worse)?

HOUSING BUBBLE: The beat goes on.....

FL: Two for one sale on houses:



New home sales fall to 13-year low

By Rex Nutting
Last update: 10:00 a.m. EDT March 26, 2008

WASHINGTON (MarketWatch) - Sales of new homes in the United States fell to a 13-year low in February, dropping 1.3% to a seasonally adjusted annual rate of 590,000, the Commerce Department estimated Wednesday. Sales have fallen four months in a row and are off about 30% in the past year. The number of homes on the market dropped by 2.1% to 471,000, the lowest since July 2005, an indication that builders are trying to work off their bloated inventories of unsold homes. The inventory represented a 9.8-month supply at the February sales rate, unchanged from January and the highest since 1981. The median sales price fell 2.7% in the past year to $244,100.


Posted at indexcalls.com:

Regarding Congress looking into the Bear Stearns bailout:

"They need to explain to their constituents how a business that dispensed billions in bonuses justifies billions in taxpayer bailout money at a time when many people are having their homes and cars repossessed. "


     Pay no attention to controlled advances in the Dow. and MSM optimism signaling problems are bottoming out. Nothing could be further from the truth.


The Financial Centipede: Waiting for the Next 99 Shoes to Drop (March 24, 2008)

After last week's dramatic bailout of Bear Stearns, the world is waiting for the proverbial "next shoe to drop" in the global financial crisis. Too bad the crisis isn't a two-legged creature: it's a centipede.  
With a respectful tip of the hat to Tony Ross's wonderful children's tale, Centipede's One Hundred Shoes let's start a list of some of the next 99 shoes to drop. In no particular order:
1. Recent new home buyers sue builders and lenders over bogus inflated appraisals. KB Home sued over appraisals. It seems KB Homes used a house in the same subdivision which it claimed was sold for $475K when the county records indicate it was sold to the new home buyer for $407K. Oops! Our bad. Now go away. Not so fast, KB Homes and Countrywide.
2. Existing home buyers suing appraisers for inflated appraisals.
3. Home buyers suing lenders for predatory/illegal/fraudulent lending practises.
4. Buyers of mortgage-backed securities suing investment banks for misrepresenting of the assets' risks.
5. Buyers of mortgage-backed securities suing the rating agencies for misrepresenting assets' risks.
6. Plaintiffs' lawyers seeking whatever deep pockets remain amidst the carnage (i.e. "grab-bag of lawsuits against everyone involved")
7. Non-U.S. banks getting judgments against U.S. investment banks and ratings agencies in overseas courts which then put the entire U.S. judicial system in an awkward light. Everyone knows the mortgage-backed securities were fraudulent; so a British or German judgment will be rejected despite the fact the U.S. entity has branches in the EU?
8. Food riots increase in the Mideast, Egypt, China, the Philipines, etc. as food prices continue to skyrocket. Rice up 60%. Hmm. How many people depend on rice for their survival?
9. Oil falls $15/barrel in a day or two, wiping out another "sure thing," i.e. "oil will stay above $100 for the indefinite future."
10. Job losses start mounting so fast the government can't create enough phantom jobs to mask the precipitous decline.
11. People begin waking up to the consequences of the global era of "easy borrowing" ending. According to BusinessWeek, Countrywide alone wrote $2 trillion in mortgage debt from 2000-2006. Who bought all that debt? Who is dumb enough to buy the next $2 trillion in mortgages? No one.
12. As oil plummets, Venezuela, Iran, Nigeria, et. al. suffer financial and social turmoil as their budgets are slashed. Oil-export states which spend much of their petroleum revenues on social welfare programs to placate their populace will be in big trouble.
13. As the recession goes global, oil demand shrivels, further reducing the speculative fever which drove oil above $100.
14. Oil exporting states' own consumption, being heavily subsidized, doesn't drop as global demand drops. This further squeezes the exporters: as more of their oil is consumed by their citizenry for peanuts/barrel, there is even less to sell overseas.
15. Consumer spending will slow further and faster than analysts expect. Consumers borrowed $3 trillion above long-term trendline spending 2000-2007. (source: this week's BusinessWeek.) "Tapped out" doesn't quite do justice to what lies ahead.
16. Smaller regional banks start folding/becoming insolvent as commercial loans go bad; these roll up and threaten a money-center bank.
17. Lenders who financed unsold/empty condominium highrises will start going bust.
18. The world realizes the Fed just burned its last belt of heavy ammo, and the hordes of financial banshees keep coming. Sure, the Fed can lower interest rates again but the mortgage rates don't drop. It can 'save" another tottering financial institution but trust has been destroyed between financial institutions.
19. The home ATM machine is not only broken, it's hauled to the dump. Let's lower the Fed rate to 1%--will that magically increase the value of homes in an environment of tight lending standards, risk aversion and massive inventories of unsold houses and condos? No. So take the home ATM (mortgage equity extraction) machine to the dump, or sell it for scrap.
20. A counterparty to a bunch of toxic derivatives goes under, lighting a chain of derivative failures which launches the "liquidity crisis" to a new level. Fed's rescue halted a derivatives Chernobyl (for now) (link courtesy of U. Doran)
21. Massive reductions in real estate valuations gut local government property tax revenues. With less money to spend, local governments have no choice but to lay off hundreds, then thousands, of employees.
22. Non-U.S. investors give up on the dollar and long-term Treasuries, buy only 90-day T-Bills. The entire "bailout" exercise and "tax rebate" is essentially funded by non-U.S. capital; as that capital dries up/goes away in disgust, America's borrowing binge dries up too--even at the Federal level.
23. Non-U.S. investors who came to U.S. financial institutions' rescue with fresh capital suffer staggering losses in a few months. Twice burned--by the dropping dollar and now by the institutions such as Citi and Bear which misrepresented their risks--the non-U.S. Posse stops coming to the rescue of defaulting U.S. institutions.

24. Global shipping shrinks unexpectedly, reflecting global glut of comsumer goods and the sharp dropoff in consumer demand. Empty containers stack up and "shocked" analysts admit the slowdown is global in reach.
25. A major U.S. company reports a dramatic quarterly reduction in profits. With U.S. stock markets barely off their all-time highs, this "surprise" sends the markets reeling.
26. Subprime crisis spreads to all mortgage classes. As this chart shows, there are plenty of other mortage classes ripe for defaults/late payments/foreclosures: not just ARMs but balloon payment loans, FHA, VA, properties with second and third mortgages, etc.:
 27. Wal-Mart and the Chinese government join in a class-action lawsuit against American consumers, demanding they increase their spending despite the recession. Just joking; as the saying goes, "you can't get blood out of a turnip."
These are just a few of the "other shoes waiting to drop"--I'm sure you can add a dozen or two off the top of your head.
From $701,000 to $459,000 to $229,000 in less than 2 years
Hi Patrick, keep up the good work in getting the info out.

As a hobby, I have been keeping track of sales prices in my brother in-law's
tract in San Bernadino county where we have some of the largest price drops in
the greater LA area. This was a brand new tract developed by KB Homes called
Citrus Heights that was completed in phases 2005 & 2006. Here is a home that I
toured last weekend that was listed in a home auction site for $229,000 and
here is the Redfin listing information:

List Price: $459,000
6032 Mount Lewis LN
Fontana, CA 92336

Beds: 3 On Redfin: 73 days
Baths: 3 Year Built: 2006
SQ.FT.: 3,305 Lot Size: 6,372 sf
$/SQ.FT.: $139 MLS#: I08008011
Status: Active

Last Sale: $701,000 (08/03/2006)


Copyright 2008, Edgar J. Steele

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