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Did Bernanke Permanently Cripple the Butterfly That Is US Housing? The Answer Is More Obvious Than Many Want To Believe
Note: Tune into Bloomberg TV at 1:12 pm EST to see me
discuss the ins and outs of real estate Hopium on the “Fast Forward With
Lisa Murphy” segment.
Struggle is not only Good it is necessary for a healthy, functional market! The Market Wants to Fly on its own!
Let’s start this post off with a popular parable.
Once an academic and self proclaimed
(albeit not necessarily mistaken) intellectual was playing outdoors and
found a most exquisite caterpillar whose colors and patterns gave it a
most fantastic presence. He carefully picked it up and took it home to
show his colleagues and peers. Together, they studied this caterpillar
and wrote papers and hyper-intellectual dissertations on it. They even
went so far as to name it. They called it, “Keynesian!” and vowed to
each other that they would take great care of it.
The intellectual spent the considerable
resources available to him as the chairman of the most powerful hedge
fund cum central bank in the world to cater to, and study this Creature
called Keynesian. Every day he watched the caterpillar and brought it
new plants to eat. One day the caterpillar climbed up the stick and
started acting strangely. The academic worriedly called international
colleagues and together they came to the understanding that the
caterpillar was creating a cocoon. The academic explained to his
colleagues how the caterpillar was going to go through a metamorphosis
and to become a butterfly.
The cadre of central banking colleagues
were thrilled to hear about the changes this caterpillar known as
Keynesian would go through. They watched every day, waiting for the
butterfly to emerge. One day it happened, a small hole appeared in the
cocoon and the butterfly started to struggle to come out [for those who
are not following, thing bubble bust at this point]. At first the
academic was excited, but soon he became quite concerned. “Keynesian”
was struggling so very hard to get out! It looked like it couldn’t break
free for its chrysalis! It looked desperate! It looked like it was
making no progress whatsoever! As a matter of fact, to many academics,
it looked as if it may actually fail.
The academic was so concerned he decided
to help. He ran to his lab and pulled out (with assistant from his
colleagues in the Treasury) an alphabet soup tools (see 10 Ways to say No, the Banks Have Not Paid Back Their Bailout and Buried
Deep Within The Files That The Federal Reserve Released On Thier MBS
Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!)
to cut the cocoon to make the hole bigger and the butterfly quickly
emerged! As a matter of fact, it emerged 100% quicker than any other
butterfly that has been observed. As the butterfly came out the
academic was shocked at the result. “Keynesian” had a swollen body and
small, shriveled, non-functional wings. The academic continued to watch
the butterfly, theorizing and expecting that, at any moment, the wings
would dry out, enlarge and expand to support the swollen body. He just
knew that in time the body would shrink and the butterfly’s wings would
expand.
Well, guess what? Neither hypothetical
actually occurred! “Keynesian” the hobbled butterfly, spent the rest of
its life crawling around with a swollen body and shriveled wings. It
never was able to fly on its own…
As the academic tried to figure out what
had gone wrong, Reggie Middleton suggested he consult with the owners
of a healthy adroit butterfly named “Austrian”. That butterfly’s
caretakers, with the assistance of Reggie, explained that the butterfly
was SUPPOSED to struggle. In fact, the butterfly’s
struggle to push its way through the tiny opening of the cocoon pushes
the fluid out of its body and into its wings. Without the struggle, the
butterfly was doomed to never, ever fly. The academic’s good intentions
severely, and most likely permanently, damaged the butterfly called
“Keynesian”.
Remember, in the Circle of Economic Life,
struggling is an important part of any growth experience. In fact, it is
the struggle that causes you to develop your ability to fly.
As excerpted from Do
Black Swans Really Matter? Not As Much as the Circle of Life, The
Circle Purposely Disrupted By Multiple Central Banks Worldwide!!!,
Bernanke et. al. have snipped the chrysalis of the US markets and
economy one too many times. He has interrupted the circle of life…
I have always been of the contention that
the 2008 market crash was cut short by the global machinations of a
cadre of central bankers intent on somehow rewriting the rules of
economics, investment physics and global finance. They became the
buyers of last resort, then consequently the buyers of only resort
while at the same time flooding the world with liquidity and
guarantees. These central bankers and the countries they allegedly
strive to serve took on the debt and nigh worthless assets of the
private sector who threw prudence through the window during the “Peak”
phase of the circle of economic life, and engaged in rampant
speculation. Click to enlarge to print quality…
The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference 
The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. All four corners of the globe are currently “hobbling along on one leg”, under the pretense of a “global recovery”.
A snapshot of the housing picture as of now, before the release of the latest Case Shiller numbers
The latest shadow inventory calculations are now available to subscribers online.
Here are a few observations that we have made regarding the March data.
The last quarter of 2010 and portions of the first quarter of 2011 have
seen a significant drop in foreclosure activity due to allegations and
blatant discoveries of fraudulent practices in the mortgage industry.
Reference:
- A Glimpse of the Wikileaks’ Smoking Gun Emails Show Bank of America Falsifying Loan Information Monday, March 14th, 2011
- Re: B of A – With Banks Being Forced To Admit The Inevitable Truth, How Long Will It Be Before Fundamentals Rule The Day Again? Friday, January 21st, 2011
- JP
Morgan Purposely Downplayed Litigation Risk That Spiked 5,000% Last
Year & Is Still Severely Under Reserved By Over $4 Billion!!!
Shareholder Lawyers Should Be Scrambling Now Wednesday, March 2nd, 2011
This near cessation of foreclosure activity has materially dropped
the shadow inventory numbers, but has done so in a way that is quite
misleading. Those foreclosures either will happen and become REOs or
distressed property sales that are currently averaging a discount of
~25% to conventional retail sales (thus further pressuring sales
prices), or will result in the properties being put directly on the
market at steep discount (again, further pressuring sale prices).
Basically, the foreclosure backlog is simply accumulating in the
background and will print a very sharp spike upwards one way or another
once the foreclosure and fraud issues of the banks are sorted out – even
if they are sorted out to the detriment of the banks. Despite this
reprieve in foreclosures, the ratio of shadow inventory to home sales is
not decreasing. This is a double negative, for shadow inventory is
decreasing (albeit for very artificial and temporary reasons). The
reason for the lack of movement in this very key figure is that housing
sales are actually declining both on a seasonally adjusted and
non-adjusted basis – and if these figures were to be adjusted for “true”
inflation, would look much worse. This leaves the ratio of delinquent
and foreclosure activity to sales relatively static. One can surmise
what happens when the foreclosure backlog that was caused by the bank’s
myriad legal issues clear up.
The most valuable chart in the study just released to subscribers, Shadow Inventory Update
— March 2011 shows how quickly one can expect the shadow inventory to
be consumed by the sale of homes. To make a long story short, we still
have quite a ways to go before we reach the pre-bubble levels, and that
is without taking into consideration the foreclosure moratoriums. Keep
in mind that these numbers do not include the pent up shadow inventory
that is being hidden by the foreclosure crisis. That additional
inventory on top of a slowing housing sales metric can easily tack one
to 4 years onto the inventory numbers.
As you can see, the credit (delinquency measures) metrics are
actually moderating slightly over the last few quarters, but have
increased over the last two. This is a negative sign considering all of
the efforts that have been made by the government and the banks to
reduce that figure. The foreclosure inventory, although lulled somewhat,
is still slightly on the rise. This lull is synthetic and temporary, a
by-product of congressional pressure and legal issues pressing the banks
to undergo voluntary and involuntary moratoriums on foreclosure
activity. The consequent movement to be expected as these moratoriums
are lifted, the banks work out their legal issues, and the properties
move one way or the other will cause a very dramatic spike in the shadow
inventory numbers. This spike will occur on top of slowing housing
sales, dramatically reduced housing prices metrics and potentially
deteriorating credit metrics (if the most recent trend continues). If
that is not enough good news for you, the Goldilocks scenario of the
perfect interest rate environment for real estate needs to (and probably
will in the near to medium term) come to an end. See The True Cause Of The 2008 Market Crash Looks Like It’s About To Rear Its Ugly Head Again, With A Vengeance
Friday, March 11th, 2011. Our calculations available ot subscribers
show a very bleak outlook for housing. It is not as if there is no
precedence for such. Take a look at the Japanese situation, and this is
not taking into consideration the recent issues of the earthquake,
tsunami and radiation poisoning and nuclear meltdown. Few things are as
detrimental to property values as radiation poisoning!
A lesson to be learned: Beware for when a true black swan event occurs…
Further reading:
- Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate Friday, February 25th, 2011
- In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse Wednesday, February 23rd, 2011
- Further Proof Of The Worsening Of The Real Estate Depression Thursday, February 24th, 2011
- You’ve Been Had! You’ve Been Took! Hoodwinked! Bamboozled! Led Astray! Run Amok! This Is What They Do! Monday, February 28th, 2011
- FASB Appears to Have Bent Over For The Final Time & Accuracy In Financial Reporting Dies An Ignominious Death!!! Wednesday, February 9th, 2011
- As
JP Morgan & Other Banks Legal Costs Spike, Many Should Ask If
It Was Not Obvious Years Ago That This Industry May Become The
“New” Tobacco Companies Thursday, January 6th, 2011 - The Latest Case Shiller Index – Housing Continues Freefall In Aggressive Search For Equilibrium Monday, February 7th, 2011
- As
Clearly Forecasted On BoomBustBlog, Housing Prices Commence Their
Downward Price Movement In Search Of Equilibrium Scraping
Depression Levels Tuesday, December 28th, 2010
»
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Another way of looking at my previous comment is, "The MORE money we GIVE to bankers.. the MORE WE go IN DEBT" !!
Whereas, if we had the government take the Fed's MONEY CREATION power, and give money directly to workers in exchange for the work they have done, as Roosevelt's CCC and other work programs during the Great Depression (i.e., BYPASS the LOAN-SHARKING, parasitic, high interest rate bankers) we could GENERATE ECONOMIC ACTIVITY for our government expenditures... INSTEAD OF MORE DEBT.
The bankers have mastered the art of turning EVERY government program under the sun - from "stimulus" roads & bridge construction, to Fannie, Freddie, to public education, to health care "reform" - etc. - into yet another SLUSH FUND for them.
See ZeroHedge's own excellent "Ben's In A Bind" by Bruce Krasting: http://www.zerohedge.com/article/bens-bind
"The total US stock market capitalization is up north of $4 trillion in the past few years. A lot of folks got rich in the process. Millions of 401k are fatter too. But it is also true that the vast majority of American’s did not see much from this. Once again, the bulk of the $4T is in the top 10%. The fellow who sent this to me said, “laying the S&P over the Fed Balance Sheet growth kind of turns one’s stomach”. That’s my reaction as well.
As much as he may like to, Bernanke can’t show this graph. It will blow up in his face. He can’t show a positive correlation of QE to higher stocks. If he does, somebody is going to show the next two charts.
The first tracks the growth in the Fed Balance Sheet and the CRB. This lines up even better than the stock chart. One look at this and you have to conclude that QE = Inflation."
(end clip) - Bernanke is GIVING 'MONEY' to the wealthy, which allows them to LEACH EVEN MORE money OUT of the real economy, they go on real asset (and productive company) LBO (= DEBT!) buying sprees with all that FREE money... then charge higher, extortionate prices with the MONOPOLY resource cartels they have just engineered, SUCKING real wealth OUT of the economy. See Forbes, "Did Goldman Goose Oil" (try to CORNER the world's ENTIRE oil supply!) which skrocketing gas prices shrank "discretionary spending" for EVERYTHING else (including new real estate purchases and home loans), leading directly to the stock market collapse of Sept. 2008.
http://www.forbes.com/forbes/2009/0413/096-sachs-semgroup-goldman-goose-oil.html
nice charts and talking points, Reggie, but you are perilously close to not seeing the woods for the trees.
#1. "The best medicine for a Depression, is a good paying job."
#1a./#2. We (American taxpayer chumps) have dished out somewhere between $20 trillion and $40 TRILLION in "bailouts," and other BACK-DOOR "bailouts" like LIQUIDITY INJECTIONS, loan-backstops, toxic asset buy-backs ("TARP"), AIG "pass throughs", and of course "Quantitative EASINGS" 1, 2, 3, and....
What does the "EASING" in QE mean? Why, DEBT FORGIVENESS, of course.
So WHY COULDN'T the HOME BUYERS get some damn "CREDIT EASING" for their lost-40%-value-in-3-years homes?
ans - because we live in an APARTHEID economy,
http://en.wikipedia.org/wiki/Great_Famine_(Ireland)#Laws_that_restricted_the_rights_of_the_Irish
BILLIONS (upon trillions) of FREE MONEY for them (banksters and the wealthy they front for) - HIGHER TAXES, HIGHER PRICES, outsourced jobs, imported (south-of-border) labor, and social safety net SLASHINGS for everyone else.
Like everything else in this rotten, criminal economy, it was all pioneered by the Rothschilds, who built themselves palatial MANSIONS all in & around London - AS 1 MILLION Irish souls DIED of the "Great Famine" 1845-1852, AS English farmers, lords, absentee landlords, merchants, AND BANKERS __EXPORTED GRAIN HARVESTS FROM Ireland's fertile estates, at the very height fo the famine. http://en.wikipedia.org/wiki/Great_Famine_(Ireland)#Food_exports_to_England
Those mansions were built on the bones & wretched misery of those who were DENIED the FOOD that their country grew - truly blood profits.
They truly are GENOCIDAL BANKERS, and they are re-visiting THE GREAT DEPRESSION, the GREAT FAMINE itself, on AMERICA today, with their laws (written by a bribed and criminal congress) that GIVE TRILLIONS to THE WEALTHY, as unused homes rot and are then DEMOLISHED. For a fraction of the cost, buyers could be given the title to the homes, and generate at least SOME economic activity from them.
While other homeowners might CRY about not getting such a sweetheart deal, I know that the EMPTY HOME on MY block, is dragging MY home value DOWN.
There are 20 million vacant, single family residences in the United States, which has a population of 308 million.
There are 64 million reportedly empty single family dwellings in China (mainly newly built), which has a population of 1.4 billion.
There is a lot of slack in the system.
Never enough time eh Reggie?
Thanks for the heads up for the interview on Bloomberg, saw it.
For those that missed it, he discussed Shadow Housing Inventory.
Good Luck Everyone...
Reggie, a nice thought piece. Thanks!
middleton's stuff is a1
i get off on the graphs
reggie man if when my roll thickens again some of it's going
to get run by you or at least the offer will be submitted
until then the data flow is appreciated verily
who knew black swans came out of cocoons?
Renting is much cheaper.
Plus, who wants a lead weight aournd their ankles. If you have to move you cannot sell your house and even break even. The selling fees are at least 10% of the price so that means your house would have to have gone up at least 10% for you to break even.
No, stay away from buying for another 2-3 years...renting is cheaper and easier no matter what they say.
Bernanke is a spendophilia.
I don't disagree with your overall thesis Reggie, but your evidence of sales dropping isn't taken year-over-year as it should be. June through January is hardly a fair sample. It's not only too granular, but it's too seasonal to have much meaning.
ZIRP here in the USA will follow the same path as ZIRP in Japan. The Fed can't increase interest rates over a nominal amount without pushing housing down further into the abyss.
While the caterpillar was tied up and vulnerable in a sleep-stasis in the cacoon, investment banker dung beetles chewed the wings off the butterfly before it exited the cacoon, and then used uncle Sam to fabricate wings out of matchsticks and toilette paper and glued them on. The weight of the government's heavy synthetic solution incapicitated flight and butterfly movement altogether, which let dung beetle investment bankers get to all the pollen. In an effort to diffuse attention from the shit dwelling investment beetles uncle Sam paved all paths to the garden with corporate sandpaper. Due to dung beetles' compound eyes being lesser than most, and government not having eyes, no one saw the flames coming.
MISSION ACCOMPLISHED, POLLEN SUCKERS!
Reggie do you have any opinion on the Canadian or Australian residential property markets ? From what I'm reading both are starting to get a bit frothy but there seems to be quite a divide in the analysis I've come across so far .
There's an australian economist named Steve Keen. He seems to be a very sharp guy. He has a blog here:
http://www.debtdeflation.com/blogs/
He often writes about serious inside baseball sort of economics questions. But he's also written about the Australian housing market and he seems absolutely convinced that the Aussie housing market is a bubble waiting to pop. Worse, his latest post is about how the Aussie gov't seems bent on making the bubble larger. Give him a read, he seems to be an open and honest and very smart guy.
Cheers for the link , will certainly give him a read .
There is a feeling that the sons of Fukushima should find a place of their own until they can return to land of fore-farthers in 30000 years. In the meantime, there are butterfly flutterings that probably started the rumblings at Sendai. The hunt for those vagrant butterflies having rendered destitute the population of Japan is now on. Its like looking for 'Red October', only its 'Deadly March' that is the more appropriate name for this brand of butterfly that no Japanese Madame who ever sponsor any more on home ground. As the sons of Fukushima take boat to all far away lands, like the Argonauts of old to find the golden fleece, they dream of retribution on 'deadly March' to avenge current catastrophe. Watch out all US housing owners when you see on your radar the signs of a Japanese sloop or U boat. You can be damn sure it is the Sons of Fukushima, true Samurai, now on their redemption trail like the Unforgiven with Clint Eastwood. They will visit every house, every nook, every cranny, leaving no stone unturned, no bed unmade; as they track down in unstoppable fashion their quest for vengeance. Like the showdown at OK corral between the Earps and the Clantons. The butterflies are warned : No quarter, no mercy; just total retribution for a tsunami to mother all others.
All US house owners are notified. This may take many years! Like the siege of Troy.
http://bit.ly/dFkYGd
If Bernanke was Tony Soprano's financial advisor, he would have been "swimming with the fishes" long ago. All this guy has done in his life is studied The Great Depression. He will not finish until America is in The Greatest Depression it has ever seen.
Yep. Studied it and, ambitious lad that he was, figured "I can do better than that!" They never say that he studied the decade before the great depression. It shows.
Reggie, I like your parable, but I like mine better.
Its the story of maggots (Central banks, the TBTF, ...) feeding off the dying carcass of the once great American people.
Why can't The Gov't give every homeowner $100,000? Those that have a mortgage will pay it to the banks, those that don't will stfu about helping deadbeats. Cheaper than POMO or QE.
gov is run by and for the banksters
The Bankstas want the money AND the houses.
+14 trillion
How about China with it's 64 million vacant condos for sale? Talk about a housing bubble! Government malinvestment at it's best.
Housing market: 13% of all U.S. homes are vacant
Japanese housing?
Wow, that butterfly is screwed! Hope it qualifies for Disability & Medicare.
The other "exciting" trend in real estate is that the generation coming out of college now is focused on urban settings. Many of them want to share apartments, share a car, walk to work, etc... Owning a home is not as important to them as it was to previous generations.
Real eastst may be down for a long, long, long time.
Beside the fact that a generation ago these same graduates didn't have a house worth of student loans when they graduated, didn't need to go back for more school to compete with PhDs (for all that's worth), didn't face unemployment, didn't have to spend money on extras like cell phone, internet and Starbucks (when coffee was $0.50), didn't face 99weekers competing in the workforce indefinitely, didn't leave school with massive credit card debt in addition to student loans, could pay $5 or less for a movie instead of $12 and gas was at or under $1.
apparently in Florida it's more like 19% of houses.
A "First Time" buyer type home in Tampa,Fl. can be had for $20,000. Of course it "needs work".
Would also make great retiree homes.
$15,000 - $20,000 in repairs would make these,IMHO, decent-clean cribs.
Anybody interested/curious? Go to "CraigsList-Tampa Bay"
IMHO, the issues of today facing us will have to be solved at the local level or not at all.
The best thing we all could do is IGNORE,from this point forward, ANY looking to gov. for ANYTHING.
They are irrelavant -BOTH political "parties"
http://finance.yahoo.com/news/Housing-market-13-of-all-US-cnnm-62477853....
Yeah but Paul Bishop, the vice president for research for the National Association of Realtors says that they are vacations homes........ so you can't really count them.
Would the US Military Stand Down and ‘Empower a Revolution’ If Faced With Riots and Civil Unrest?....
http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/03/would-us-military-stand-down-and.html
U.S. Protectionism Just Around the Corner?...http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/03/us-protectionism-just-around-corner.html