Case-Shiller

The S&P 500 will go no higher that 1430 by 2020, a mere 90 points higher than it is today. The current multiple normalized over the past ten years is 23, making the market outrageously expensive. The historic average is only 14. We are only 17 months into a second lost decade for the stock market.

While Americans are apparently able to pay infinite amounts of money for gas, we still can't find a price they are willing to pay for homes as this morning's Case-Shiller Survey shows home prices in the 20-city index falling ANOTHER 3.6% from March to a brand new 8-year low.

You knew it was coming...

Despite Goldman's expectations of a +0.1% sequential move, and the broader economic lemming consensus of a modest -0.2% drop, the just released March Case Shiller housing data confirmed there is no end in sight for the housing double (or triple, or quadruple, or who cares: take out the Fed's $2.7 trillion and housing really has been in a non-stop plunge for 3 years now), missing expectations and printing at -0.23%. In addition the February data was revised even lower from -0.18% to -0.25% (expect failed career economists at Goldman and elsewhere to disclose this as a huge positive as it is really an increase). The Composite 20 dropped -3.61% on expectations of -3.4%. The press release says it all: "This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels." Cue QE3, 4, and so forth through QE 666, at which point we may see in uptick in worthless Bernankebux. And as we predicted earlier, bizarro day, with futures about to hit 3 year highs, now reigns supreme.

Case-Shiller house prices, the Chicago PMI, and consumer confidence. Fasten your seatbelts: bizarro day will be fully enforced today with horrible data leading to market surges.

What is the relative value of housing if we price it in ounces of gold? My basic point of view is that nominal prices and broad terms such as deflation, inflation and growth should be viewed with extreme skepticism. The more useful approach is to examine the purchasing power of various assets and the the purchasing power of the income streams generated by those assets. Put another way: to value housing, let's compare the price of a house priced in loaves of bread, or ounces of gold, or barrels of oil to historical norms. Secondly, let's look at the income stream generated by the median-priced home (that is, the median rent and net income after all expenses of maintaining and paying for the rental home are deducted) and ask how many loaves of bread, ounces of gold and barrels of oil that net income can buy. In terms of the median price, it took almost 600 ounces of gold to buy the median priced house in 2005. Then housing collapsed, and gold rocketed from $500/oz to $1,500/oz. As a result of housing declining by 40% and gold tripling, the ratio has plummeted by 80%, from 500 to just above 100. How low can the ratio go? Some might look at the second chart and conclude that the previous bottom around 90, in 1980 when gold shot up to $800/oz, might well mark a bottom in the ratio.

They've FIXED the economy, alright ... in favor of the top .1%

This week all eyes are on the Federal Open Market Committee (FOMC) and Federal Reserve Chairman Ben Bernanke. The FOMC must decide whether to stop monetizing the federal debt issued by the Treasury, which is what the U.S. central bank calls “quantitative easing.” Americans continue to believe — and hope — that the Fed can save us from our collective idiocy when it comes to debt, both public and private. While there are growing signs that the Fed’s zero interest rate policy, or “ZIRP,” is greatly damaging individuals and financial institutions alike, we also need to question whether the Fed can let rates rise without provoking another financial assets collapse. In effect, the Fed and other global central banks are all caught in a “Catch-22? situation, to borrow the phrase from the 1961 novel by Joseph Heller. The Fed’s aggressive easing of interest rates and purchases of trillions of dollars in Treasury debt and other assets has stabilized and even raised the price of financial assets, but in other respects the Fed’s policy of reflation has failed — especially compared with past interest rate cycles.

The trend in house prices appears to be worsening. We expect an acceleration in the decline in the Case-Shiller measure for February. Modest POMO closing at 11am will do little to offset the $35 billion in 2 Year notes to be auctioned off at 1 pm.

Things are certainly speeding up, and it is my conclusion that we are not more than a year away from the next major financial and economic disruption. Alas, predictions are tricky, especially about the future (credit: Yogi Berra), but here's why I am convinced that the next big break is drawing near. In order for the financial system to operate, it needs continual debt expansion and servicing. Both are important. If either is missing, then catastrophe can strike at any time. And by 'catastrophe' I mean big institutions and countries transiting from a state of insolvency into outright bankruptcy.

The deflating Dollar is the World's Reserve currency at 62% of all the money in the World and growing fast as Ben buys 'em as fast as Timmy can print them and then loans them out to the Banksters, who promptly lever that money 10:1 to buy commodities.

Neil Barofsky is resigning in style today with a scathing editorial in the NYTimes (when WILL Murdoch shut those radicals down?) in which he calls the program a FAILURE and "little more than a giveaway to Wall Street executives."

Something remarkable happened to property taxes in the U.S. while housing lost 31% of its value from 2006 to 2009: they went up by $100 billion (27%). Equally remarkably, as we can see from this U.S. Census Bureau data on state and local tax revenues, property taxes went up even when housing slumped in the early 1990s. So though U.S. housing continues losing value--U.S. home prices declined in January, continuing a downward trend that began in August, with average U.S. home prices retreating to summer 2003 levels, according to the S&P Case-Shiller home-price indexes--property tax revenues continue their inexorable rise. So even as the net worth of property has fallen by a third, the property taxes collected from the owners have risen 27%. Exhibit A in this ceaseless rise of property tax revenues is the structural shortfalls in state and local government budgets between what was promised to various fiefdoms and constituencies at the apex of various bubbles, and what is sustainable in non-bubble times.

Case Shiller data is out, and it is as horrible as ever. The Home Price Index came at 140.86 compared to 142.42 previously. Basically the double dip refuses to stop, and that even despite yesterday's "stunning"(ly irrelevant) pending home sales number.“Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future” says David M. Blitzer, Chairman of the Index Committee at Standard &  Poor's. “With this month’s data, we find the same 11 MSAs posting new recent index lows. The 10-City and 20- City Composites continue to decline month-over-month and have posted monthly declines for six consecutive months now. “These data confirm what we have seen with recent housing starts and sales reports. The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing."

The decline in house prices may have slowed in January, but consumer confidence probably dropped in March. Daily POMO viagra today is in midget dose, with just $1.5 billion in monetization.