The Economy Guy

In the news today…..

Condo’s Fight Back – by forcing banks who hold mortgages on condos to pay the HOA fees.  This is true for Housing associations too.  It’s called a “reverse foreclosure.”   Here’s how it works.  When a Condo owner stops paying its mortgage, it generally stops paying HOA fees too.  The HOA files a lien on the condo right away.  The bank is very reluctant to foreclose, so they don’t because they don’t want upside down properties on their books.  So, the Condo HOA goes to court and the court gives the condo to the bank, and the bank MUST pay the HOA fees.  A nice trick.  The banks were sticking it to mortgage holders over the past few years, and it’s nice to see the HOA sticking it to the banks.  What goes around, comes around.

China – today hyped bonds and trashed gold.  Why?  Well, I believe they want to maintain the value of their US Treasury holdings, and want to depress gold prices so they can buy more, cheaper in the future.  But, that’s only my opinion.  China is very crafty, and you should always look behind whatever they say – and I could add you should do that for any government’s statement.

FDIC – head, Shiela Bair, said that big banks should pay an upfront fee to pre-fund a “resolution authority” to handle future bank failures.  It would only cost about $10B/year, and that’s no bad, according to Bair.  Is this the beginning of getting the Resolution Trust Authority of the 80’s back in business?

Brazil – will put import duties on over 100 imports from the US?  Why?  Because the US is giving money to US cotton producers, thereby giving US producers an unfair advantage.  This is the WTO ruling, and it allows Brazil to take this action.  Is a trade war starting?  I wouldn’t doubt it as the world economy continues to crumble.  Each nation will try to protect its own markets.  This happened in the Great Depression, and what’s going to stop it now?  Well, we are much more closely tied internationally now; but is that enough to stop a trade war in general?  I don’t think so.

Mutual Fund Cash Reserves – are at the lowest they’ve been since 2007.  They are currently at 3.6% of total assets.  This means there is little cash left for new stock purchases.  Does this mean stocks are hitting highs and will be difficult to go higher?  I leave that to the reader to determine – as I usually get stock predictions wrong.

Tonight’s Dinner Conversation….

Where is the budget deficit from all that spending by our beloved Congress?  How big will it get?  Can we ever pay for it?  Those are the topics tonight.  Here is a graph to help focus your mind.  Please note that the CBO projections are FAR WORSE than the President’s projections.  My personal belief, based on past performance, is that the CBO estimate is also optimistic.  For example, the CBO assumes that inflation will remain stable (low) throughout the estimated period – I doubt it.  So, reality is probably worse than this graph shows.  However, these are today’s official figures.  So, go figure.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,565 (up 10)
10 Year Treasury Bond – 3.70% (down 0.01%)
Euro – $1.3599
Gold – $1124 (down $11)
Oil – $30 (down $0.57)
Gasoline – $2.29  (up $0.02)

Stocks were flat today, but bond interest rates continues their slow climb upward.

The Dollar was flat, but oil/gasoline went up, and gold went down a little.

In the news today…..

New Home Assistance Program – is now going to start on April 6th.  The program will encourage home owners who are underwater and want to get out of their house by offering them $1500 relocation expenses to do a “short sale”.  The mortgage servicer will get $1000 and the second mortgage holder will get $1000 too to grease the wheels of the short sale.   What does this really mean?  It means there will probably be more short sales.  And, it means the home prices will probably continue to go down, as the buyer in the short sale only wants a “deal.”

China – has hinted it will break the link with the US Dollar with its currency.  This means it will look at protecting itself in the new world exporting order, and keep its currency level low enough to keep exporting (the main engine of their growth) and still expand into the 21st Century.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,553 (down 14)
10 Year Treasury Bond – 3.71% (up 0.03%)
Euro – $1.3632
Gold – $1124 (down $11)
Oil – $81.77 (up $0.27)
Gasoline – $2.29  (up $0.02)

Stocks rose to a near term high above 10,500 and bond interest rates increased slightly.

The Dollar went sideways, as did gold.  But, oil and gasoline were much higher and you can now anticipate increasing gas prices.

Unemployment  Rate – stayed at 9.7% for February.  How did this happen?  Well, the official statistics said that we lost 36,000 more jobs in February, and more people entered the (looking for) work force — BUT, unemployment didn’t change.  This statistic stinks.  The “Underemployment rate” as officially announced by the government jumped from 16.5% to 16.8% – a more credible change.  You can see that unemployed folks are pushed off the count, and pushed onto the underemployed list.  However, if you want to really look at the truth – if you measure the unemployment as the US government used to count it – the rate would be over 20%.  That’s one if five people who are looking for work of any type.  We are truly in a depression from the unemployment point of view.

Census Workers – will join the ranks of employed – pushing this statistic higher in the coming months as the Federal Government will be hiring 1,250,000 people – and of course, they will be laying them off after the Census too – but they don’t talk about that.  So, this phony number will become more phony in the future.

Balanced Reporting – I know that I’ve painted a bleak picture in the previous two news items, so I want to balance the picture a little.  There is hiring going on out there.  Lots of companies are hiring new employees, or are planning on hiring in the near future.  This is great news.  However, the new gain in jobs is negative – so that’s why I paint a bleak picture.  It’s the gross numbers that push the economy around.

Retail Sales – rose 3.7% in February, and this is truly good news for the economy.   Consumers are still stingy in what they buy, but they are letting loose of their spare change in greater quantities right now.  And this increase was in the face of a a very white winter across America.

Federal Pay – is greater than the equivalent civilian pay for most pay positions.  This shows just how screwed up our economy really is.  A government job has great security that comes with it, but civilian jobs don’t.  Civilian jobs should pay more than governmental jobs.  I wonder if any politician has the brass to take on this problem…..

Healthcare Costs UP – and the Obama administration is scratching their head as to why?  They will be asking the insurance industry to explain themselves.  I can hear the answer now – it is the cost of medicine and hospitals and doctors; not us!!!  Of course, the fiasco going on with the healthcare bill doesn’t help, and the government wouldn’t want to think that it might be culpable in the problem.

International Trade – is falling off.  If you follow container traffic, you will see that container traffic through the Panama Canal is down anywhere from 15% to 25% annually depending on the port you measure.  This is not a good sign with respect to international trade.

Tonight’s Dinner Conversation…… The Mortgage Market

The FED has bought almost $1.25 TRILLION worth of MBS (Mortgage Backed Securities) to keep mortgage rates low.  Was this a success in your mind?  Well, I have a two pronged answer for you.  The FED did keep the mortgage market going – rather than let it collapse with no one able to buy property – and property values collapsing much more than they have — in this case they were successful.  However, in keeping mortgage rates low, I consider the FED a failure.  I didn’t see mortgage rates going REAL LOW.  Yes, they were below 5%, or so if you could find them in your area.  But, I remember back in the 60’s when the mortgage rate was in the 3 and low 4 percentage range.  So, I think the FED, with all the power in the world, failed to move these rates LOW.  The question running around in my mind is “Why? Did the FED fail?”

What about the FDIC?  They have acquired MBSs through their acquisition of failed banks.  You see when a bank fails, the FDIC appoints another bank to take over, but that other bank doesn’t want “crap” on its books, so the bad stuff goes to the FDIC.  The FDIC is going to auction these MBSs off in the open market.  This is a ploy to set a price for the “crap.”  I don’t think any market price will be set because these sales will come with a “government guarantee.”  So how could an MBS with a government guarantee be compared to one without it?  I don’t think it can be compared, so most MBSs can’t be priced, and won’t be priced through this maneuver.  We are seeing another government maneuver in the financial markets that is going to fail.

What do you think?

Wild Card…..

Brazil is cozying up to Iran, and the US is concerned about it.  There could be a lot behind this relationship, but here are the ones that are more obvious:

1. Brazil is flexing its sovereign muscles, and telling the world it is the So. American powerhouse – and no one else.
2. Brazil could be allowing Iran to open a bank in Brazil to circumvent US sanctions against Iranian banks.
3. Brazil is enriching nuclear fuel using a new technology, and Iran undoubtedly wants to get its hands on it.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,566 (up 122)
10 Year Treasury Bond – 3.68% (up 0.05%)
Euro – $1.3622
Gold – $1135 (up $2)
Oil – $81.50 (up $1.58)
Gasoline – $2.27  (up $0.03)

Stocks and bonds were sideways today.

The Dollar lost 1.5 cents against the Euro which sent oil and gold prices higher.

In the news today……

Detroit Real Estate – prices are astonishing.  Can this happen else where?  Or, is this just associated with the car industry meltdown?  20% of Detroit foreclosure are being left empty.  Property prices have fallen 80%.  The average price for Detroit houses is $7500.  Some houses are selling for $1.  Can this happen to your neighborhood?  It can happen, obviously, as it is happening in Detroit.  Stay tuned.

Commercial Real Estate – is broken, and crashing about two years behind the residential real estate market.  $46B, or 5.8% of mortgages, are in default.  This is a 325% increase over the previous year.  Watch out below.

February Lost 20,000 Jobs – and this is less than the 60,000 jobs lost in January.  Is this good news or bad news?  I think any job losses is just BAD news, no matter what the trend is.

Greece cuts budget next year – by reducing its spending by $6.5B.  This budget cut was accomplished about 50/50 in reduced spending and increased taxes.  This will be painful to the average Greek.  However, it is my feeling that much greater cuts are needed to pull Greece out of its quagmire.  Greece is trying to get the rest of Europe behind its plan, and allow Greece to borrow cheap money.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,397 (down 9)
10 Year Treasury Bond – 3.63% (up 0.02%)
Euro – $1.3703
Gold – $1139 (up $2)
Oil – $80.94 (up $0.07)
Gasoline – $2.24  (up $0.04)

Stocks jumped up a little today, but they are really going sideways as are all other markets.

In the news today…..

Bank Loans – are down since the crisis started – not much new there, but what are the banks doing with your deposits?  Here is a graph showing the decrease in loans.

Bank Loans

Banks are buying short term Treasuries, and making money on your deposits.  So, the banks, in effect, are bailing out the government as the government needs somebody to buy their bonds.  What a warped world we live in.  Here is the change in bank loans and treasury purchases.  It tells the entire story.

Bank Assets

US Monetary Base – or how much money is the FED printing?  Look at the following graph and you will see that the FED hasn’t stopped printing money now that we are “recovering”.  I wonder why?  They just don’t seem to think that less money is needed yet – so they keep on printing.  This is the inflation story in a graph.

Monetary Base

Turkey Wild Card – the Turkish Government arrested 50 officers in their military who were planning a coup d’etat.  I am reporting this to you so you know that things can come out of the blue to change everything.  What if the military took over Turkey, and they were militant islamists?  What would that mean to the world?  

And here’s what happened last week……

New Housing – sales were down
Jobless Claims – were up
Durable Goods Orders – were down.

All bad news for the economy, and which was totally ignored by stocks.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,404 (up 79)
10 Year Treasury Bond – 3.61% (up 0.01%)
Euro – $1.3556
Gold – $1118 (down $1)
Oil – $78.87 (down $0.87)
Gasoline – $2.16  (down $0.03)

Stocks fell on the poor consumer confidence news.  Bond interest rates fell on the news.  

The Dollar continued its strengthening, and gold/oil/gasoline all fell in concert.

In the news today….

Consumer Confidence – hit a new recent low going back to 1983.  What this means is that people are less confident in their future, and their financial future, and will be spending less.  As the total expenditure by individuals is about 70% of the US economy – it doesn’t bode well for our future GDP.  The confidence index number can in at 46, where 90 means the economy is okay, and 100 means the economy is growing.

Oil price is up by speculation – why do I say that?  In the past few months, there was aa great correlation between a weak Dollar and strong oil.  But, today, we see high oil prices with high Dollar prices.  What’s happening?  Oil refiners are closing down refineries – temporarily and permanently.  This decrease in supply of gasoline will result in higher gasoline prices.  Higher oil prices is being pushed by speculators, but oil companies will have trouble making money in gasoline as the input oil price is now higher.

Housing Prices are UP – for the 7th straight month.  This is significant.  However, it is my own personal opinion that the big bubble states (CA, NV, AZ, FL) are still going down as the number of foreclosures in those states are more significant.  So, we must always remember that real estate markets are always local.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,282 (down 101)
10 Year Treasury Bond – 3.69% (down 0.09%)
Euro – $1.3508
Gold – $1102 (down $16)
Oil – $78.84 (down $1.47)
Gasoline – $2.07  (down $0.05)

Stocks went sideways today, but interest rate continued to creep up.

The Dollar gained a little, and gold fell a little, and oil/gasoline went up, and are starting to look expensive.

In the news today…..

Citibank – has told its customers that it may refuse to allow you to remove funds for 7 days whenever in the future it feels like it.  I have warned previously about having your funds in this bank, and I am renewing my warning here.  You don’t need this type of hassle.  Think about this for a second  Strong banks wouldn’t have to warn you about this type of action.

Gasoline – will be over $3.00/gallon this summer.   We’ve probably seen the low for this winter, and the price is already starting its upward trend as we move closer to summer – even if there is snow on the ground around you.  Remember that this is real inflation when it happens.  As an aside, China is now buying more crude oil from Saudi Arabia than the US.

New Credit Cards Rules – kick in today.  The companies are looking for ways to make up their lost revenue.  If you pay all your balance, you will pay more.  The card annual fees will be going up.  

Tonight’s Dinner Conversation…..

The economy is growing. Hurray…  But, where are the jobs?  Jobs is the big problem in the economy.  The economy can grow, but if jobs don’t start being created, then any recovery is not sustainable.

And, one more point about jobs – we are still losing jobs, NOT creating jobs yet.  So, what’s really happening??

The Jobs Bill with its tax incentives just isn’t well thought out from the perspective of a business owner.  What a joke.

How about this??  20% of males between 20 and 55 years old – don’t have a job right now.  What will be the fallout to our society due to this problem?

The solution to the jobs is multiple, multiple years.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,383 (down 18)
10 Year Treasury Bond – 3.80% (up 0.02%)
Euro – $1.3599
Gold – $1118 (down $8)
Oil – $80.03 (up $0.22)
Gasoline – $2.12  (up $0.03)

Stocks moved sideways today, confused by the FED’s move.

Bonds increased in interest rates, and have been for the past couple of week.  The bond market foresaw the FED move, and was nervous about Europe and Iran.

The Dollar went sideways as did Gold.

Oil and gasoline is pointing the way right now.  Oil is nearly $80/barrel, so beware of higher energy prices.  Maybe it’s just the global warming caused freeze in the east that’s causing energy to go up, but I don’t think so.  Naturally, I go with the speculation method of price increases.

In the news today…..

Discount Rate UP – yes, the FED raised the Discount Rate yesterday.  It was raised to 0.75%.  The discount rate is the interest rate that the FED charges banks who borrow money overnight from the FED in order to maintain their reserve requirements.  If they have too much reserve money, they can deposit it with the FED or another bank overnight, and get paid.  I wrote recently about how the FED wants to replace the FED Funds Rate with the an interbank lending rate.  This is as close to that interbank interest rate as you can get.  Big banks with lots of reserves will now continue to get more money – just a slight amount less – and it’s a gift from the FED.   It used to be that the Discount Rate moved in tandem with the Fed Funds Rate, but no more.  The FED stated this Discount Rate hike will not have any impact on your personal lending.  I am skeptical, but maybe just a little leery about this announcement – I will be watching for ANY Prime Rate moves within the US because of this hike.  That would affect everything.

Another thing the FED changed was the duration of their Discount Rate loans.  It was always a 24 hour loan, and it was moved to 28 days when we had our economic meltdown a year ago, but has been moved back down to 24 hours again.  This is a good sign that banks are a little more healthy, and can start working like they used to before our crisis.

The FED screwed up the release of this change change.  They did it after hours on Thursday evening, and didn’t explain that the rate increase was “just a technical change, and not a policy change.”  This communication and timing of the rate increase could have been done much better – and it spooked the stock market.

Jobless Claims – rose 31,000 jobs to 473,000 claims.  This number is still way too large to suggest that we are creating jobs across the US.  Also, it gives credence to the thought that the 9.8% unemployment rate is bogus.

Ken Lewis – former CEO of Bank of America has testified under deposition that he was briefed twice about the increasing losses of Merrill Lynch prior to the Bank buying that company.  In other words, he knew he was buying a pig in the poke, and didn’t tell the BofA shareholders.  Just another scumbag.

CPI rose – 0.2% last month.  The news naturally mentions that inflation is negative “when you exclude food and energy.”  ALWAYS ignore this exclusion.  You know that when you live in this world, you always have food and energy in the prices you pay.  So, the total CPI is the real number.  Now this number is very low, but positive.  This low number gives the FED time to work the problem.   What problem?  The problem of unwinding all those TRILLIONS that it gave out to save the world.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,402 (up 9)
10 Year Treasury Bond – 3.78% (up 0.04%)
Euro – $1.3611
Gold – $1121 (up $1)
Oil – $79.97 (up $0.94)
Gasoline – $2.09  (up $0.02)

Stocks jumped a small amount today, and bond interest rates went up too.  It’s the interest rate increase that interests me most.

The Dollar gained significantly today after losing the same amount yesterday.  Gold stood still, and oil/gasoline were level also, but at a high level.

In the news today……

Short Sales to Increase –  Major banks including Bank of America, Wells Fargo, JPMorgan and Citigroup are trying to offload souring mortgages from their books by turning to “short sales.” Short sales occur when homeowners settle debts by selling their properties for less than the mortgage value, and the number of short sales is expected to rise sharply this year as foreclosures climb.

IRS going after HSBC – after they went after UBS and Credit Suisse.  A latest lawsuit implies that the IRS is now attacking HSBC in its quest for tax cheats.  It is alleged that HSBC started to hide its US accounts after the IRS starting its attack on UBS.

Stimulus Bill – “staved off another Great Depression” and it “saved or created 2,000,000 jobs” are wonderful political banners; but have no meaning in the real world.  From an economics point of view, it is impossible to prove or disprove these statements.  You would hope that the 2,000,000 number could be substantiated, but it can’t.  Ignore these statement because they could be detrimental to your wealth.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,309 (up 40)
10 Year Treasury Bond – 3.74% (up 0.08%)
Euro – $1.3606
Gold – $1120 (up $1)
Oil – $77.39 (up $0.38)
Gasoline – $2.01  (up $0.02)

Stocks surged again today, as Europe solves its “Greeks asking for gifts” problem.  Also, Congress was snowed in, so maybe they couldn’t do damage today.
Bonds continued their rise in interest rates, and have broken a key technical barrier.
The Dollar strengthened a little today, and gold surged (contrary movement) and oil rose (contrary movement) and gasoline fell (amazing).

In the news today……

Small Banks Struggling with Commercial Real Estate Loans – Soured commercial real-estate loans are still tripping up the economy, according to the Congressional Oversight Panel. Specifically, there are nearly 3,000 small banks that may have to dramatically cut their lending as losses on those loans may reach as high as $200B-300B. Concern about banks’ exposure to commercial real estate has been building for months, and Elizabeth Warren, head of the oversight panel, warns that those banks “are about to get hit by a tidal wave of commercial-loan failures.”  And, on the same note…..

FDIC and Commercial Banks - FDIC guidelines suggest that a bank whose commercial real estate holdings exceed 300% of capital is “overexposed” to the sector. Based on that metric, there is no shortage of candidates that the FDIC could seize in 2010. As of the end of the third quarter 2009, more than 1,200 banks had commercial real estate exposure of greater than 300% of capital, and 500 of these banks had exposure greater than 400% of capital. The assets of those banks total approximately $650 billion.  I hope that scares you.  I also hope you look at this as an opportunity (read next article).  The commercial real estate sector is the subprime mortgage crisis for 2010.

Commercial Real Estate Opportunity – What happens to those FDIC non-performing loans?  Well, someone buys them, and those people are making out like bandits.  The FDIC alone sold about 3,500 commercial real estate loans with a book value of more than $6.1 billion last year; that compares to commercial real estate loans sales in 2008 of just $153 million. Nonperforming loans went for 37 cents on the dollar last year but November and December 2009 sales prices coming in closer to 30 cents. Performing loans sold for about 57 cents on the dollar, but with the most recent sales coming in at 44 cents.   So that means you can buy a non-performing loan for 30 cents on the Dollar, and then foreclose on the property and take it over – and I bet there are some great ones to snap up at a 70% discount.  You won’t be the first one out there as private equity companies are already doing this.  Just a few hours of ROI analysis and all the necessary due diligence, and you too could be buying a true cash flowing bargain.

Discount Rate Hike?? – that’s what Ben Bernanke said would happen soon.  But, he was very careful to point out that any increase in the Discount Rate is NOT a signal that interest rates were rising.  As you all remember, the Discount Rate is what the FED charges banks who need emergency, short term money to cover their reserve requirements.  As such, any small hike wouldn’t adversely affect a bank’s balance sheet – so Bernanke could be telling the truth that it ISN’T a harbinger of higher interest rates in general.

The US Deficit – how bad is it?  You are hearing all about Greece and its debt, and how it must be bailed out by Europe.  Well, here is a great chart that shows the ratio of national debt to GDP for the US, Greece, Spain and Portugal.  The US looks like it is on the brink of being a “banana republic”, as it is WORSE than Portugal and catching up fast to Greece and Spain.  The problem is that the US doesn’t have any plan for reducing its deficit.  It is going to have $1TRILLION deficits from now until the foreseeable future, and that means we will default – plain and simple.

Manufacturing Employment – have you ever wondered if all those jobs really went overseas that everyone is complaining about losing???  Well, I always wanted to know how many, and when did this happen.  The following chart answers all those questions.  And more importantly, it tells me that if we want to get unemployment back down to “normal” levels, then we better get some of those jobs back into the USA.  But do we have politicians able to do that?  I doubt it.  You can see that the number of manufacturing jobs is now back to the levels seen right after WWII.  That is amazing.  No wonder we’re having a problem.

Tonight’s Dinner Conversation……

The following link was sent in by one of the readers.  It tells a tale of the FDIC and how it managed the breakup of IndyMac Bank in California.  While I cannot verify all of the details in the video, the story is still worth listening to.

Watch Video http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1013624

If there is any truth to the allegation that Goldman Sachs is benefitting from the sale of the IndyMac Bank, then it continues to show how close our government agencies are to Goldman, and it certainly makes you question who is running the government.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,144 (up 106)
10 Year Treasury Bond – 3.73% (up 0.04%)
Euro – $1.3690
Gold – $1094 (up $18)
Oil – $75.28 (up $0.76)
Gasoline – $1.91  (down $0.02)