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Can We Ignore and Soar?
Which Way Wednesday - Can We Ignore and Soar?
By Industrial Production was DOWN 0.2% vs up 0.2% expected. This 200% miss was led by a 1.9% drop in utilities as consumers simply can’t afford to keep the lights on anymore, even with very low natural gas prices keeping costs down. The only segment that was up was - you guessed it - MINING, as top 10% speculators hoarding shiny bits of metal in anticipation of the collapse of civilization drove production up 0.7%, marking 3 consecutive months of increasing activity.
Housing Starts dropped 10% in September and Permits for future starts dropped another 4% and this morning we got word that Mortgage Applications fell 10.5% last week as the price of a 30-year fixed mortgage went from 4.21% to an unaffordable (I guess) 4.34%. Imagine prospective buyers sitting at a table saying to the broker: "4.34%? Why that’s outrageous, we won’t pay it!" Inflation (real inflation) is 3.5% and you are paying 4.34% so that is a net effective 0.84% interest rate on a home AND STILL NO TAKERS! As we noted last week, 34% of Americans think their homes will go down in value next year.
That’s just silly - home prices are ALREADY down in value by 12% this year. Your home is, unfortunately, priced in dollars so the "stable" prices this year are only stable when priced in a currency that’s collapsing. To Japanese or European buyers, your home value is swirling down the toilet just as fast as it was during the first two years of the collapse.
It’s kind of like when the coyote is standing on a rock that has broken off from the cliff and doesn’t realize he’s falling with the rock - these illusions work just fine until you both splatter into the ground…
What then, is the point of giving us the illusion of economic health by debasing our currency faster than the economy is falling? Clearly we are not fooling the consumers - consumer confidence is in the toilet because a vast majority of consumers live in the real World which is currently located between a rock and a hard place for 90% of Americans. Oh, by the way, don’t forget that those polls where 60% of the people say the economy sucks include the top 10%, who think the economy is great - so great, in fact, that they are putting all their money into gold and shifting their money into foreign countries - just like the first class passengers getting off the Titanic.
The point is, that without devaluing the dollar by 12% and keeping mortgage rates down under 4.5% then more than 10% of the $20Tn of currently outstanding home loans would be underwater. Even at 10%, that’s $2Tn worth of loans that the banks will lose a great deal of money on (see chart). 10% of $2Tn is $200Bn. If the homes drop another 10%, not only do the bad loans escalate to $4Tn but the bottom half go 20% underwater or more and become much more likely to default and now we’re looking at $600Bn in losses - AT LEAST.
Oh, and by the way, NONE of this is reflected on the books of the banks as they continue to follow the "Mark to Fantasy" model that has been sweeping this massive issue under the rug for 2 years now. This is the "extend and pretend" policy we have committed to in the US - we HOPE that home price will recover at some point but that’s just not going to happen without jobs and, since there are no jobs, the fallback plan by the Fed to protect the banks is to debase the currency so that it LOOKS like $20Tn of bank assets are holding their value (in declining dollar terms).
How long can we keep this up? That’s the big question in the markets. I have said for a very long time that Quantitative Easing that is not accompanied by stimulus is madness. Well, we jumped down that rabbit hole and now the markets are falling up as we jump on the boulder that’s falling down while embracing the illusion of a solid floor. "We’re all mad here," said the Cheshire Cat. "How do you know I’m mad?" said Alice. "You must be, said the Cat, "or you wouldn’t be investing in this market!" Or at least that’s how I remember it….
Another very good bit of investing advice from the Cheshire Cat is:
"Would you tell me, please, which way I ought to go from here?"
"That depends a good deal on where you want to get to," said the Cat.
"I don’t much care where–" said Alice.
"Then it doesn’t matter which way you go," said the Cat.
"–so long as I get SOMEWHERE," Alice added as an explanation.
"Oh, you’re sure to do that," said the Cat, "if you only walk long enough."
What is our investing premise then? Which way do we want to go? In an environment like this one, the most important thing to do is PROTECT our assets. Sitting in cash doesn’t work because inflation is eating its buying power away but we can’t go putting everything in commodities either as they, ultimately, need to be bought by someone and if demand isn’t there and the inflation story eases off, they can lose value quicker than anything.
Yes, we need to protect against inflation but don’t confuse protecting yourself FROM inflation with betting ON inflation. As we learned from Japan, Quantitative Easing can only take you so far. While we are weary of hyperinflation coming down the pike, that will be very easy to take advantage of as we can leverage options plays to huge profits if everything is heading up and up. Right now, our goal is just to stay ahead of the declining dollar and to hopefully find a few good companies we can invest in for more than a few days.
Case in point, the BOE is now looking at their own QE and the EU "quasi-automatic" sanctions on members that overshoot their deficit targets is pretty much saying that there are no hard stops on EU deficits anymore. The BOJ is in money-printing mode as well so it’s going to be very hard to destroy the value of our own currency if every other country is destroying the value of their currency at the same time. This, of course, is why people buy gold but, as I point out to our gold bugs, ABX has 140M ounces of gold reserves. At $1,400 an ounce that’s $196Bn. A rise in gold to $2,500 an ounce transfers $154Bn of Global Wealth to ABX and similar gains for other miners adding up to a good Trillion dollars. Do you really think that is what Central Banks are trying to accomplish?
The top 1% and their pet bankers currently control 66% of the global wealth. It’s not likely they are going to pursue a strategy that hands 10% of it over to miners, is it? As always, it’s amateur speculators that get caught up in currency and commodity crazes while old money - REAL MONEY - continues to buy land. As we’ve been noting in Member Chat for quite some time now, Blackstone (BX) has been on a spree lately, buying almost anything that isn’t nailed down. $3.9Bn for Extended Stay, $1Bn from ProLogis, $300M to Columbia Sussex (Sheraton)… Almost every week there is another deal where BX buys more real estate.
I like BX as a long-term investment, especially with our buy/write hedges that give us a 20% discount on the purchase. I also like companies like KO (more on my interview with CEO Muhtar Kent later today) who manage inflation for you with smart hedging strategies. You don’t have to knock yourself out figuring out how to take advantage of inflation/deflation/commodities/real estate when there are perfectly good companies who already have the skill sets to do that for you. We’ll be focusing on these companies this week and into the weekend when we’ll have a list of "Stocks that can Weather the Storm" (More in Member Chat.)
We had a near perfect test of our 7.5% lines yesterday, as expected and now we’ll see what holds up as earnings season swings into full gear and we count down to those elections in less than two weeks. We’re still fundamentally bearish (based on observed facts) but technically bullish (based on market manipulation keeping us over the lines).
There are lots and lots of opportunities to make very good money in this crazy market without committing a ton of cash to commodities or tying up a lot of money in speculative stocks. Last week I thought the dollar was bottoming and I stand by that as it’s an important time to stay flexible and take those BS long profits off the table before the market takes it for you!
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over time the fundamentials will always rule supreme.
http://covert2.wordpress.com
Read an article on getting a mortgage approval. They used two examples of people with flawless +800 credit. One very well heeled paying 75% of the property looking for a mortgage for the balance of 25% and both of them have to resubmit paper work multiple times. At one point Citibank turned down the whole package because a photocopied paper looked like it had a edge torn. They were finally approved after reasonable assurances were made that it was a paper clip mark by 44 witnesses , 12 of them expert witnesses.
The wait time was months and months. That's for the few left that have perfect credit and make a fair amount of income. So it's no surprise that mortgage applications are down. Why go through that when you have a mere +720 and know you will be rejected. In short they are dangling these extra low rates out there but they are unobtainable unless one doesn't need it and if necessary can pay cash for the whole thing.
The whole record low mortgage rate thing is just more piping hot BS served up for the BS hungry population.
Porky Pig, the robot trader...
http://www.youtube.com/watch?v=ESidBrr2cxk
quanstipated easing
It's up, it's down. Oh when, yesterday or half an hour ago? Fundamentally crazy, yet crazy not to participate ... the lizard brain is pumping.
Markets are manic ...
http://www.youtube.com/watch?v=QYdq0ABH3so
Wow, a great article and old Phil didn't stoop to blaming Bush. No mention that comrade Barry is in charge of this giant scam either though.
To hell with home prices. People need to accept homes are not investments, they are not ATMs, they are not the key to economic well-being. Homes are a place to get out of the elements, nothing more(at least physically). Put at least 20% down and expect to live there for the duration of payments at least. If you don't like the idea of being tied down to one place, rent. If neither of those work for you, then you must accept there is risk involved in any transaction and if you get your ass handed to you because things turn south, that's too bad. Pick up and start over whether you're single, married with 9 kids, or a bank.
PMs + the necessities to guard them. Land + the skills to utilize it. End the Fed. FTW.
Hump Day playlist, enjoy the music!
http://www.youtube.com/view_play_list?p=D78860E6821CDD13
We're looking at trillion+ dollar deficits for years to come... and I'm not even counting the liquidity flood from QE2.
Something tells me that this is not going to end well.
We can ignore and soar until an unkown outside variable fucks it all up
That "unknown outside variable" will unfortunately be "known by those on the inside".
Until then, how about we all play a game? Everyone place your bets on which will goto zero first:
1) VXX
2) QID
3) BAC
4) USD
The dollar is being devalued because of the carry trade. The Fed is handing out money at ZIRP and investors are going overseas to invest in foreign markets with higher returns. The net effect is the dollar is decreasing in relative value to other currencies. The Fed's money printing is contributing to this devaluation, but not as much as people want to believe. When the party ends overseas, the dollar will spike as greenbacks are repatriated in a panic.
Thank you for discussing home price's immense devaluation when priced in US dollars. There is indeed inflation, yet the Federal Reserve and of course US Government do not want to admit this, as then So-So Security payments would need to go up accordingly (and that would add higher debt). At this point in time, only a fool would but TIPs/Bonds/etc and stay in dollar or buy a home. S/He who has the gold makes the rules. It's good to be King.
Yup, lot's of ignoring going on here...
Today's most viewed:
http://www.youtube.com/watch?v=HARQKAHkXXk
vs
http://www.youtube.com/watch?v=IEw25ByILkY
and in case there was any doubt...
http://boxofficemojo.com/news/?id=2951&p=.htm
That's some ugly shit.
OMG--how about Inside Job?? $150k total in its first week in theaters. Makes me feel bad that I haven't hauled myself out to see it yet. Too bad they didn't adopt a web-based distribution model.
They should sell it to the networks. Not many people will pay to see a documentary.
I guess it should have been in 3D?
While I give guys like this all the credit in the world, I do wonder how many regular folks out there actually pay any attention to this (or give a crap for that matter)? The market continues to trade higher on hopes the Fed will never remove the IV and that, like every other crisis in recent memory, nothing will change or get resolved. This Enron powered economy will move ahead, the party will go on for those that feel they are entitled to the finer things in life and whatever crap we encounter will just get swept under the rug again and again. I have a nagging feeling we all could be sitting here bitching and complaining about all this for many years/decades while life passes everyone by or until the internet gets shut down (whichever comes first). I am deeply concerned that David Rosenberg will go into cardiac arrest at any moment. That's not a good thing. <sigh> Taking the RED pill was a mistake, wasn't it? On that note, I tip my hat to Angelo Mozilo (he being THE poster boy for everything wrong in this world). The multiple layers of cosmetic surgery don't fool anyone, but you're going to be free man soon, so who the hell cares?
It is an interesting thesis - however, who owns the miners? How much of the miners are owned by the top 1% - who have no problem transferring money from their left pocket to their right pocket, as that is what would happen if gold goes up in value?
Exactly what I was thinking. And I should add, who is buying the Gold? It's not likely an option in many 401K plans.
AG stocks are strong on the corn holdback by Illinois farmers....If AAPL would breakout, we would soar.
No, not unless your income is going to go up 3.% / yr. , otherwise you pay a real 4.34%
They can play 'pump the stocks' as much as they like in desperation to get retail to get in a 'panic stock buying mania' as theyre trying to do, but it will never work. Even the morons can now clearly see markets are not where you want to be...and even if they wanted to they have no money! I actually think its pretty funny watching Big Dumb Ben flail away with his college thesis like a lunatic. Have fun!