International Forecaster Weekly

More Mortgage Fallout As House Prices Decline Sharply

more mortgage fallout as house prices decline sharply, credit problems grow, a sharp decline in steel shipments, declines in building materials, feeding farmers subsidies, a useless campaign contribution cap, keeping oil imperialism on a leash, declines in capital spending, politicians under investigation, domestic spying, paranoia in the homeland. 

Bob Chapman | July 28, 2007

JP Morgan says house prices could decline 15% over the next two years, as ARMs adjust higher and trigger waves of defaults, which will spill into other credit markets. They are talking about the overall housing market. The former 30 hot areas well fall another 15% to 30% until they are off 30% to 60%, depending on area and how much they rose in value.

As collateralized debt obligations are halted Wall Street will lose $8.6 billion annually in underwriting fees. Buyout groups rely on CDO’s for 60% of the loans to finance acquisitions. That is nothing compared to the $2.6 trillion of subprime and ALT-A debt that is falsely priced on the books of hedge funds, governments, pension and retirement plans and a myriad of other investors.

Moody’s says the credit market route caused by the slump in the subprime loan market gives serious reasons to worry and is a reality check.

Chrysler has abandoned plans to sell $12 billion of loans to complete its purchase by Cerberus Capital Mgt., after investors balked at purchasing the high-yield, high-risk debt. JP Morgan got stuck with $10 billion of the debt and Cerberus and Daimler Chrysler bought $2 billion. This is subprime contagion. Deals are frozen and won’t thaw soon.

If it weren’t for foreign earnings a slew of US transnational conglomerates would have had lower earnings. They were GE, UPS, IBM, Caterpillar and FedEx. Dupont and Pepsi can thank foreign sales as well.

Homebuilder Centex reported a $128 million loss in the 2nd quarter.

US Steel profits fell 25% on lower shipments.

USG, a leading producer of gypsum wallboard used in home construction saw a 68% plunge in 2nd quarter earnings, on sales that dropped 10.5%. One of the interesting events of the past week was the statement by Treasury Secretary Paulson that “a strong dollar is in our nation’s interest.” The result was the dollar hit a 12-year low. Obviously the pros finally realize that government couldn’t tell the truth if their lives depended on it. He also pontificated that, “There has been a very significant housing correction. I think we are at or near a bottom there. I don’t deny there’s been a problem with subprime mortgages, but it’s quite containable.” Wall Street knows it is not containable. Credit is frozen and it’s obvious the CDO, credit and real estate correction has a minimum of two years to go. Paulson has lost all credibility. There is a credit crunch and the knock-on effects are spreading through the debt markets. Foreigners have made a $2 trillion bet on US credit and now they’re discovering it is not as good as they thought. As well, the housing slump and falling home values continues to hinder consumer-spending power. Now as you can see concern has spread to equities. This also means the era of giant takeovers by private equity groups and the enormous leverage used by hedge funds and other institutions will be toned down considerably.

American farmers have seldom been as prosperous as they are today, yet the House is poised to approve a subsidy-laden farm bill more suited to the “Great Depression.” They want to perpetuate the $70 billion received over the last five years in a system of price supports and direct payments that disproportionately rewards the rich corporate growers of corn, wheat and soybeans. More than half of the spending is concentrated in 20 congressional districts. House Speaker, Nancy Pelosi touts this as reform. She has to have her head screwed on backwards. These are political payoffs. She seems especially proud of a new means test under which farmers with an adjusted gross income of $1 million or more would no longer receive subsidies, down from the present cap of $2.5 million.

Reducing an outrageous cap to a lower outrageous cap is not exactly reform. Believe it or not the Bush neocons wanted a $200,000 limit. Both parties in one way or the other constantly cater to the rich who are a fountain of campaign contributions. Washington corruption knows no end.

On Wednesday, the House passed HR 2929, Banning Permanent US Bases in Iraq. What is just as important is that the bill states that it is the policy of the US not to exercise US control of the oil resources of Iraq. The measure bars the use of any funds provided by any law from being used to carry out any policy that contradicts these statements of policy.

This is a very important piece of legislation because it keeps the Illuminati from stealing Iraq’s oil. If this becomes law there is no valid excuse for the elitists to remain in Iraq. They will stay in Afghanistan to stay in the drug business.

Capital spending weakened for a second straight month in June. You cannot spend on research, development or plant and equipment if you are buying your stock in the market. Demand for planes pushed total orders up 1.4%. Excluding those transportation goods, orders fell 0.5%.

Orders for core capital goods to increase business’ production, capacity fell 0.7% after being off 1.5% in May. Capital spending is down 3.4% yoy.

Shipment of durable goods fell 1.1% in June reversing a 0.6% gain in May. Shipments are down 0.4% ytd.

Unfilled orders rose 1.5%, with almost all the gains coming from aircraft, as inventories rose 0.2%.

Rep. Don Young (R-Alaska), the former Chairman of the House Transportation Committee, now is the subject of a continuing criminal inquiry involving possible political favors for a company in Alaska. Sen. Ted Stevens of Alaska, the powerful former Chairman of the Appropriations Committee and the longest serving Republican, is also now under criminal investigation.

This is six years of government, corporate and Wall Street scandals, almost one every day.

Young was hooked up with Jack Abramoff and is best known as the architect of the bridge to nowhere.

We are told our president has issued orders for the FBI to begin recruitment of more than 15,000 paid informants to begin spying on fellow American citizens. These informants supposedly will seek out terrorist, foreign spies and in criminal investigations. They will collect data on US citizens, pry into phone records and computer files and use black bag secret breaking and entering techniques.

This news comes on the heels of the top domestic general in the US Air Force General Victor Renuart, who heads US Northern Command calling for tripling of troops on American soil to battle alleged phantom sleeper cells, and Mr. Bush’s new executive order outlawing all opposition to the Iraq War under threat of confiscation of all property and imprisonment for life. This is exactly what the NKVD, KGB and Stasi did in Communist countries.