Housing Prices: The Slide Continues
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Bill Bonner, writing for The Daily Reckoning, analyses the latest housing news from the U.S., including the recent increase in prime mortgage defaults.
Bill Bonner (The Daily Reckoning):
The Los Angeles Times tells us that mortgage defaults in the prime category rose in the 3rd quarter. If you are wondering what might happen to housing prices in the US…should the depression continue…you might want to keep an eye on the default rate.
Housing prices are down about 30% nationwide. In some areas, they are down much more. But they had been going up for so long…this downswing still seems like an aberration. Hope has momentum…especially in the housing market. Housing prices rose along with inflation for 100 years. Then, they rose much faster than inflation over the last 10 years, ending in 2007. This leaves people with the impression – false – that housing always goes up over the long run. As we have pointed out many times in these Daily Reckonings, housing prices in the nicest neighborhood of Baltimore, where we have our offices, hit their highs, in real terms, in the 1920s. They’ve been going down ever since. Even after the big run up to 2007, they were still below their ’20s peaks. That’s a bear market in real estate prices that has lasted, so far, 80 years.
We don’ t have reliable numbers – in fact, we don’t even have unreliable numbers – but our guess is that property prices in central Rome topped out during the reign of Trajan…or maybe even Augustus. They must have gone down for the next 1700 years, because as late as the 1800s, the most precious real estate of the Roman Empire…around the forum…was being used as a goat pasture. That’s still better than say Troy or Ctesiphon – cities that were abandoned and forgotten completely.
Real estate doesn’t go up over the long run. Sometimes it goes down…often for a very, very long time. . .
Click here for the rest of Mr. Bonner’s commentary at The Daily Reckoning.
Original source for this article: Contrarian Profits
If this is true, we all need a vaccine
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Baltimore — (TFN): It’s confirmation! On Friday I wrote how I may have a touch of the flu or some other mind-altering ailment because my thoughts were far more liberal than I am comfortable with admitting.
Well, it turns out my ultra-liberal, straight-ticket voting, French-guy marrying sister has a verifiable case of the pig flu. And guess who I had dinner with on Thursday night? You betcha, big sis.
There we have it: cause and effect.
Fortunately, my head case was short-lived. By the time my venison sausage and eggs were off the front burner on Saturday morning, I was back to my old self, almost knocking my O.J. off the table stomping my fist over a local political battle.
In Friday’s edition of notes, I quoted the following paragraph from Callum Robert’s book The Unnatural History of the Sea:
If any trawling ground be over-fished, the trawlers themselves will be the first persons to feel the evil effect of their own acts. Fish will become scarcer, and the produce of a day’s work will diminish until it is no longer remunerative. When this takes place (and it will take place long before the extinction of the fish) trawling in this locality will cease, and the fish will be undisturbed…
I used it to show that unregulated free markets often fail to self-police until it is too late.
More importantly, I promised to discuss how regulations are equal failures when it comes to the subject of protection from ignorant and greedy market forces.
I can list dozens of examples, but I will stick to the aquatic motif.
Recently, the federal government enacted an emergency ban on sea bass fishing here on the East Coast. From Cape Hatteras to all points north, the staple of the recreational fishing industry is off limits.
“Big whoop,” you say. “There’s other fish in the sea.”
That’s the problem. There are other fish in the sea, like tautog.
You see, NOAA tried to remedy the effect, not the cause.
The cause of the problem is there are too many greedy fishermen. But no government entity would ever want to anger somebody by telling them to put their $50k boat on blocks, so they simply close a specific fishery.
Meanwhile, the fleet, with its limitless supply of greed, moves a couple of miles and targets another species. Along the mid-Atlantic, the next species is tautog, a slow-growing habitat sensitive species.
Thanks to NOAA’s short-sightedness and must-act-now mentality, tautog are witnessing fishing pressure like never before. It is unsustainable, no matter how you measure it.
I have already given up hope on catching the species next year. Like I said on Friday, given the chance, fisherman will catch the very last of a species and then start asking, “now what?”
If you paid attention to last fall’s meltdown, you know much of the problem stemmed from the derivatives market.
The market for credit default swaps, mortgage-backed securities and a host of other credit-based derivatives went largely unregulated without notice until the weight of massive credit collapsed the shoulders of the market.
Now that hundreds of billions of dollars in wealth have disappeared, folks like Nancy Pelosi and Barney Frank want to regulate the market.
I say don’t bother wasting the ink.
The markets have already caught the last fish and will simply move onto something else. It always does.
Unless Congress bans all investing or the amounts we can stick in the market, bubbles are going to inflate and bubbles are going to pop.
The more the government tries to regulate the natural forces of the market, fear and greed, the bigger the bubbles will get and the harder they will fall.
Get used to it. It’s the way things work.
*** In Friday’s edition, I asked for comments on the notion of regulations. Wow. Ask and you shall receive!
Oddly enough, except for the guy that called me a commie (jokingly, of course), the response was quite bi-partisan. Overall, as was expected, the tone was overly anti-regulation.
By now, those of us that have paid any attention have learned regulations just won’t cut it. Now, if somebody would let Congress now.
Here’s a few of the most telling emails I received. Keep them coming.
“The problem is deeper than regulation as you know. Structurally it has been skewed and morphed into a large horse racing parlor where we place bets on the horses. Marx postulated that ‘man had become disassociated with his work’ and I believe the investors no longer invest, but place bets on companies. They are no longer ‘investing in the company’. This was not what was intended when the word was ‘investing’.
“Another issue is the legal system we use has shifted from a ‘Constitutional’ based law to a ‘case’ based law. This helps make the system overly complex and contingent on the specific words and phrases used, and judges interpretation of this wording.
“Complexity leads to failure and we have ‘vested’ interests in keeping complex. More regulation will not help.” – Dave E.
“Get the wolves out of the sheep pen!
“Those who caused the meltdown should be fired or jailed, not running the institutions, agencies, and departments responsible for what we are facing for the next decade (or more). Legislators should not be permitted to legislate this problem away, they should be empowered only to assemble a committee of real experts to debate and recommend a course of action.
“Maybe in this way our representatives will be unable to do things like repeal Glass Steagall, enable Barney Frank to overextend loaning money to home buyers who can’t afford to pay rent, etc., etc.,etc.” — Bill S.
“The key to the dilemma is this. Stop trying to find an ‘ism’ to subscribe to. Life is a lot less crazy-making if a person isn’t trying to make sense of a situation by looking to ideologies such as liberalism or conservatism for explanation or guidance.” Kirk W.
“Unfettered free markets always devolve into feudalism. Excessive regulation always leads to collectivism. These are the two extremes in distribution of wealth. History has demonstrated that every society is on a watershed which tends to move slowly toward one or the other.” – Peter A.
More on the subject tomorrow. For now, keep the comments coming.
Original source for this article: Contrarian Profits
How to play the dangerous dollar
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Baltimore – (TFN): The dollar is a dangerous entity these days. Never has there been such a globally important currency with as much political and financial manipulation.
The distortions from reality are mind-boggling, yet all of us depend on the status of the simple fiat for our financial wellbeing.
The person with the most skin in the dollar game is, no doubt, President Obama. The nation’s economy hinges on the fate of the greenback and the White House knows it. That is why it is doing anything it can to slow the slide.
Even if it is entirely psychological.
Today, reports are flowing from Washington that show Obama may have plans to use up to $210 billion in TARP money to lower the nation’s ever-increasing deficit.
It is creative accounting at best and a $210 billion bribe at worst.
While the average Oprah-watching, Crocs-wearing American won’t take a second out of their do-nothing day to read below the feel-good headline, there is a handful of us that are actually paying attention.
With this idea of “paying down our debts,” it is vital to remember the Treasury didn’t pull the $700 billion in TARP funds out of some cavernous account.
We borrowed that cash. And now Obama wants to use the borrowed money to pay back our debts, minus a year’s worth of interest of course. It’s like taking out a loan to pay off your mortgage.
The timing of these rumors is more than suspicious.
Just yesterday, China slapped the currency markets in the rear by once again raising the notion of dumping the dollar and making a sudden change in its exchange-rate policy.
Ironically enough, less than 24 hours later, Obama has a $210 billion check in his hand ready to “repay” our debt.
It is money from one hand, around the back, and into the other.
But it gets better.
Obama is not the only one trying to mask Uncle Sam’s debt problems. Just about every exporting country in the world is desperate to keep the dollar strong.
They have to. Their economies depend on it.
Rumor has it countries like Russia and South Korea have been buying dollars on the open market over the past few weeks, in an effort to keep the greenback’s slide from gaining even more momentum.
The governments would rather risk devaluing their reserves than allow their economies to suffer from the effects of a weak dollar.
Looking forward, the question is how long can the manipulation last? How long can the dollar remain artificially inflated? And how long until the markets naturally take care of the situation?
While we may not know the exact answer to any of those questions, it does not take an economics scholar to realize the outcome will be horrific, at least for those of us with dollars in our pockets.
*** The solution? Buy gold. According to the top dog at Canada’s behemoth gold miner, Barrick, we have every reason to believe we surpassed “peak gold.”
That means all the easy gold has already been stripped from the ground and supplies are only going to shrink from here.
According to the CEO, Aaron Regent, global gold production peaked in 2000 and is expected to continue declining into the foreseeable future. So far, mine production is down by nearly 10%.
The news of increasing supply constraints comes at a time when demand is already surging. For those of you that were under the bleachers during Econ 101, it means prices will continue to rise.
There has been a lot of discussion about a sudden collapse in gold prices as many investors believe the current boom is merely a fear-induced bubble. Two or three months ago, I would have bought the story. But not now.
The dollar is simply too weak and foreign reserves are accumulating gold too quickly for prices to fall sharply.
China’s immense buying alone is enough to limit near-term fallout. The country has already doubled its gold reserves and Beijing continues to be a major buyer.
Just one more reason for bulls to send prices higher.
*** Just so you can’t say I don’t let you in on anything for free, I’m going to toss a freebie your way.
With gold prices reaching into record territory, it is a perfect week for Van Eck to release its Market Vectors Junior Gold Miners ETF (NYSE:GDXJ). The freshly created fund gives investors a stake in 38 small- to mid-sized gold miners.
For investors looking for a simple way to take advantage of the gold bull with some additional leverage, this is the ETF to do it.
Thanks to the speculative nature of junior miners, expect shares to beat the market when gold prices are surging and underperform when the bears return. For now, there is plenty of upside potential.
Original source for this article: Contrarian Profits
