Which Way Wednesday - Cliffmas Is Upon Us

ilene's picture

Which Way Wednesday - Cliffmas Is Upon Us

By Phil of Phil's Stock World

Merry Cliffmas!

That's all the MSM is talking about but the markets are, so far, drifting along in the upper end of the year's range into this potential "fiscal disaster."  Perhaps the catastrophe is already priced in or perhaps it simply won't be a big deal to go back to pre-2000 tax rates and to force some spending cuts.

If falling off the cliff is priced in, a "solution" might rally the markets. On the other hand, fixing the Fiscal Cliff may weaken our markets as it puts the US on the continued path to endless debt through printing money.

Of course Japan has continued down the path of endless debt through printing money and its markets have been on fire this week.  With the re-election of Helicopter Abe, who has vowed to weaken the yen by printing them by the Trillions, the Nikkei has jumped 2.5% this week - all the way back to 10,330 while the Yen falls to 85.36 to the Dollar - a 3-year low.

Our own easy-money policy coupled with the refusal of the Banks to pass it along to the consumer has created record-high spreads between what the Banks pay for money and the 30-year fixed rate mortgage they charge consumers.  Banks are now making spreads of 1.25-1.5%. This is compared to the less than 0.5% which they managed to get by on in the early years of the 21st Century.

Despite making these usurious rates, they still offer the consumers less than nothing for deposits (as in, not enough to cover even "core" inflation) and they still can't attract investors, with the banking sector still down near half of where it was in 2007, when XLF was in the high $30s.

Another cliff we hit on 12/31 is the end of FDIC's special Transaction Account Guarantee, which provided insurance for accounts over $250,000 and will affect $1.5Tn worth of accounts on deposit at US banks.  Banks, especially small ones, are scrambling to avoid losing this money and it will make for an interesting earnings season in Q1 as the banks step into the confessional and indicate how much faith their depositors really have in them.

On the other side of the coin, the Obama Administration is looking to double the size of the popular Mortgage Refinancing Program, which helps modify underwater mortgages, by making it possible for non Government-backed mortgage-lenders to work with the program.  As it stands now, about 10% of the 12.1M homes that were underwater (10% of US homes) have been refinanced through the program.  This would provide yet another well-timed boost to housing for 2013 as that sector continues to look investable.

With 10M Americans unemployed and under-employed in the Housing Sector alone, this is a great area of the economy for the Obama Administration to be focusing on.  As you can see from the chart on the left - housing starts are still nearly half of their historic average after 3 years below the line. Even if you assume we over-built in the earlier part of this decade - we've worked off that excess inventory by now.

From 2001 through 2005 (the last full year that home prices consistently increased), an average of approximately 1.3M households formed in the US, just a little under the 50-year average. In contrast, during the subsequent period of 2006 through 2011, an average of approximately 600K households formed, yet the population grew at largely the same rate.

Weak household formation is most likely related to high unemployment, as people have delayed moving out of their parents’ homes, getting married, or even getting divorced until their employment situations are secure. Even with an unemployment rate that remains stubbornly high, there are recent signs that household formation has begun to normalize. The Census Bureau estimates that in each month of 2012 (through September) there were about 1 million more households on average than in the same month of the previous year. This is a significant change from 2011 when the average year-over-year change was about 635 thousand, and from the previous four years when the average was approximately 550 thousand.

Household formation in 2012 is therefore approaching more normal levels, close to the historical average of about 1.3 million. Over the long-term, household formation is what drives demand for housing and for home construction. The current positive trends in household formation therefore suggest that demand for housing is starting to finally look healthy again. This will be one of the investing trends we are going to follow in 2013.  In 2012 - we focused on HOV and it has generated huge returns for our Members as that stock climbed from $1.50 to over $6 (up 300%) in 2012. In 2013, we will broaden our screens to include more potential winners in that sector now that we are more comfortable with the underlying fundamentals.

This is how you invest - you find macro fundamentals that are painting a long-term trend and then you identify medium and short-term opportunities that have that long-term Fundamental support. If you learn to invest like that, you won't need to sweat over every rumor that runs past your screen on a daily basis. These long-term trends are hard to establish and just as hard to break - taking the time to identify them is one of the best investments you can make!

Looking forward to a very profitable 2013 with all of you.



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Manic by Proxy's picture

If we breach the debt ceiling while simultaneously going off the fiscal cliff, doesn't that strike anyone as breaking laws of philosophy, geometry, theology and finance? And what is the best wine to go with all of that? I'm thinking a nice Shiraz. Or a Zinfandel.

Money 4 Nothing's picture

Okay, look.. I will come clean with the ZH folk's right here.

This "Fiscal Cliff" is more like a self imposed "End Game". Obama had a Congessional meeting after the (stolen election) and he told the Senate and Con-gres to hand him over Dictitorial powers. The answer to his demand? I don't know to this day, but what I do know is that this Cliff is more of a blackmail threat that he is okay with if not all hail to Caesar.

They, the bankers that he is beholden to, will drop the hammer on America in a couple different way. Austerity aka higher taxes on the lower 98% is one of their punishments to further enslave the USA. In my opinion*, were totally bankrupt already. Search Free trade in the US and see for yourself.

Your "Represenatives" are not paid to represent We the People, they are beholden to the Corporate States of America and the Central Bankers that run the joint. Not the Constitution which ensures Liberty and Freedom. Thier practicing surfdom and adopted a financial framework that resembles something that Karl Marx would applaud.

America, your "Government" has failed us.   

More later.


disabledvet's picture

So I love commenting on our place in this time with the phrase "with a back drop of war" since...well, no one in America either acts or knows not only that there is a war going on...but we've been at it going on 11 years "with the only known notable achieve the attainment of the highest suicide rate of US Veterans in History." Now THERE'S something to hang your hat on Uncle Sam! DON'T MAKE IT TOO OBVIOUS! America stands astride the Oceans like a Collossus...and appears to be taking a dump. Which way Wednesday? More like "out our ass Holidays." We're going to ramp up the HEMP...I mean HAMP program? Wasn't this the one the TOTALITY of civil servants had declared "a complete fraud" but a year ago? http://en.wikipedia.org/wiki/Home_Affordable_Modification_Program Wow. REALLY? Leaving aside the fact that this program works directly AGAINST the war effort by wasting 10's of BILLIONS...the totality of Government has called the whole program "a complete failure." Needless to say "the popularity of said program is negative 100 percent." And who loves it? Well of course "the people we elect...and nobody else." Imagine that. Wow. I mean...wow. Is there going to even be an attempt to stop doing the exactly wrong thing at "forever time" in America? Ever? No? I really fail to see how this program is not going to meet the "sudden appearance of Mr. Austerity" and not cause a real blow up. I'm sensing...a SHOWDOWN! http://www.youtube.com/watch?v=7Y5EB6xAPxA
and here's some Buddy Guy just cuz: http://www.youtube.com/watch?v=qBvG0uuoiQo
i'll save the real good stuff for later...

BraveSirRobin's picture

We have several wars going on as we speak. We have the wars on poverty, obesity, AIDS, terror, cancer, drugs, and, the least commented upon of all, common sense.

ebworthen's picture

The whole damn FED fueled bubble recovery looks toppy; go ahead and buy, P.T. Barnum would approve.

Widowmaker's picture

"This would provide yet another well-timed boost to housing for 2013 as that sector continues to look investable."

LOL.  Gold plated bullshit.  Housing is untouchable for a generation, maybe two.

Money 4 Nothing's picture

Baked in the cake. Lil Timmah says raise the debt limit to infinity and the Bernank says print untill moral improves.... I fail to see the problem?

petolo's picture

Just follow the trend . Where can i buy a Wallmart flag ?

I am Jobe's picture

On a side note, parents are fucked in the USSA

Raising a Kid: $235,000…Before College


GCT's picture

It all depends on who is paying the bill Jobe!  Raising a kid is costing taxpayers $235,000 a year there fixed it for ya!

Odd Ball's picture

It doesn't have to cost that.  My brother in-law is raising 10 kids on an income that can't exceed $50K a year.  Homeschooling them all.  Best kids you'll ever meet.  It depends on where and how you raise them.

Looney's picture

How's that "Buy AAPL" working out for ya, Ilene?  ;-)


DeadFred's picture

LOL. Still the beauty of options is when you screw the pooch like Phil did on that one you're not out the whole $700 dollars

foxmuldar's picture

So after reading this are we supposed to be jumping for joy? Must of the original housing that was built was buiilt by Illegals. Many of them have hightailed it back to Mexico. The other half are still here collecting their welfare checks and foodstamps. Seems Obama never saw a bailout plan he didn't like. Best way to save the housing industry is to let all those who couldn't afford a house and bought with little or no downpayments, lose their homes. They never should have been in them to start. And what good is giving them another mortgage if they won't be able to pay that one either. Soon Obama will want to wave his magic hands and forgive all those bad mortgages. The suckers that continue to pay their mortgages well they probably voted for Obama so they deserve to keep paying for the rest of the dead beats. Bah Humbug. LOL 

And whatever happened to It's a Wonderful Life.  Every Christmas it was one of the favorites to watch. Perhaps too many people are now buried in Potters field to show the movie anymore. 

Odd Ball's picture

And whatever happened to It's a Wonderful Life.

Thank you.  I've been wondering that myself for the past week.

Snakeeyes's picture

Now Obama wants to have EVERY investor and instution write down their mortgages, regardless of cost to taxpayers. The giving away freebies by Obama and Dems is just getting rolling!