Secretary of the Treasury Hank Paulson says, “All the signs I look at show the housing market is at or near the bottom.” The question is what is our Mr. Paulson smoking or is he just a plain liar? He believes the meltdown in subprime mortgages is not a serious problem and he thinks it is largely going to be contained. We are talking Mr. Paulson of $1.4 trillion in mortgages that should have never been made going upside down. There is no question Mr. Paulson, the Fed, Wall Street, CNBC and our government all know we face a collapse in the housing market. That is why we see Fannie and Freddie and various contributions by lenders and lender bailouts, which amount to a Band-Aid on a gapping gash. What is $35 billion when you have a $1.3 trillion overhang? Housing prices won’t recover until 2012. Paulson, the banks, Wall Street and Congress could care less about the borrowers - they are concerned the fallout will send the stock market lower and trigger a financial crisis. A market and an economy that is being held together by the bailing wire of hedge funds and derivatives. If lenders were really serious about helping people who they gave loans to who were totally unqualified, they would just give them their homes and let the shareholders foot the bill. In reality the bill should really go to Alan Greenspan and the Fed, they caused all this. This is just the beginning – wait until phase two begins and panic sets in. We are facing the biggest decline in housing values since the 1930s and nobody gets it yet. In former hot markets prices will fall 15% to 25% this year and more next year as the tragedy plays out.
Then there are the CDOs, collateralized debt obligations, which are about to be downgraded. In finality hundreds of billions of dollars will be lost. That is $1.4 trillion of which hedge funds will eat $840 billion and they are leveraged over 10 to 1. If that doesn’t provide a market and economic collapse nothing will. That is why wealthy investors are bailing out of hedge funds. What will happen to the bankers and brokerage firms, who securitized these loans – nothing. They have laid off all of the risk, like any good bookmarkers would. Hedge funds will be losers, but so will everyone in the stock markets, especially pension funds. People are going to find out what an unregulated market is, and how it is going to cost them billions or trillions. They will find out what the current account deficit and the yen and Swiss franc carry trades are all about – the hard way. Wait until the $500 trillion derivative bomb hits. That should bring people out of their slumber. Markets in essence are unregulated banks. That is why when we quote an estimated M3 we add 4% for this kind of credit creation. It is nothing more or less than a gambling casino. Last week the Carlyle Corp. and we talked in terms of 2 to 3 years, but who knows. We may have that untoward event and the financial system could bust wide open.
No more cash outs and no more equity loans are in homeowners’ futures, and that means consumer spending will fall. Consumer spending makes up 70% of GDP. Can you see what will happen as we return to the long-term mean of 64.5%? The bottom is nowhere in sight and we have begun the freefall.
The only safe place for now is gold and silver related assets and Swiss franc bonds, with a uranium company or a very special situation thrown in.
IBM will increase its share buyback by $15 billion and its dividends by 33% as it ships more and more jobs out of the US. The funds are coming from increases in debt. How’s that for leverage? In the first quarter they made $1.8 billion and bought $3.5 billion of its stock. That is almost double income. Earnings rose 8% but their tax rate fell to 28.5% from 30% and currency gains were 4% of the 7% increase in revenues.
The International Council of Shopping Centers says retail sales from last week were the smallest in six weeks.
At a recent meeting in Chicago, Fed Chairman Ben Bernanke used the terms crisis, risk, panic, threats, stress and similar words 36 times. He is fearful that the housing slump and increasing defaults in the subprime mortgage industry will cause a fearful snowballing effect on the economy. That is because he cannot lower interest rates due to a falling dollar and rising inflation and if he raises rates the economy will collapse.
The Beige Book reports NY and Minneapolis report steady and firm growth, while Dallas was moderately strong. Most districts reported manufacturing activity was slow. Residential real estate activity continues to weaken. Demand for residential loans was flat or slowing. Most districts reported continued tight labor conditions, particularly skilled wage increases were reported in some districts, though were generally modest.
Monica Goodling, a key aide to AG Alberto Gonzales during the purging of the 8 US attorneys, has by a 32-6 vote by the House Judiciary Committee been granted immunity. Hopefully this will lead to the truth of what really went on.
The MBA says the mortgage applications index climbed 3.6% on the week ended 4/20. Sales of new homes rose 2.6% in March. The purchase index increased 3.7% and the refinancing index rose 3.6%. The 30-year fixed rate mortgage fell 0.09%.
As a result of the slowdown in real estate from lenders to home brokers to construction workers to property managers to janitors to supply store workers employment is evaporating. This is the first quarterly drop in places like Orange County, CA., since the summer of 2002. That is 4-1/2 years of great prosperity. Even though jobs grew 14,933 in the first quarter it is the slowest hiring since late in 2002.
During the last real estate recession from the second quarter of 1990 through the first quarter of 1995, the county lost 26,500 real estate and financing jobs, a drop of 16%. Construction was particularly ravaged by the down draft, with the loss of 1/3rd of building jobs. During that period 42,000 manufacturing jobs were lost as globalization began.
In 2000, in early April, as we gave our historical call to bail out of the stock market and at the same time said the next step would be war to distract the public from the recession we were about to have, we called it perpetual war for perpetual peace. That November we said that on 10/16/01 there would be a planned event that would be an excuse for war. That event was 9/11 and we were only 35 days off the mark. Thus, we are in an era of perpetual war, which is now accompanied with over 100,000 mercenaries, government sanctioned abuse, torture and murder and a corporatist fascist government. Unfortunately, a majority really could care less what goes on in Iraq, other nations or even in the US. The neocon-elitist brand of democracy is in reality tyranny. Americans just do not want to know what is being done in their name and they don’t care about what little freedom they have left. Most Americans have forgotten right from wrong. Americans are allowing tyranny to reign and aiding in their own enslavement. Americans have even been sucked in by the scam known as the War on Terror. It doesn’t exist. It is a figment of the imagination of the diseased minds of elitists. This fear instilled in American minds has allowed our enemies to implement a police state. We are told we need security to protect us from foreign terrorists. Security is a key word in the nomenclature. You must give up your freedom for safety. Americans we are embarking on an Orwellian nightmare and you let it happen. You can stop it by contacting everyone you know and everyone in Congress and telling them where we are headed and you want it stopped.