Housing: Time to Panic!

9/20/2008 Update: My thoughts on the 700 Billion dollar bailout of 'bad bank debt' by the Government, proposed 9/19/2008...

This is simply going to be a disaster. They are calling for it to be 700 billion dollars, but if this number is based on any type of baseline calculation, we can assume the real cost will be 10x or more. Why? First of all, I suspect the government lowballed the estimate so the population doesn't panic. What probably wasn't factored was that the taxpayer has to pay all the maintenance fees for these loser mortgages. As a result, the bailout will cost far, far more than they are projecting. All the fees; HOA's, insurance, utility assessments...the government gets to pay these bills in an environment of record inventories and foreclosures. This means we as taxpayers get a conglomerate of long term liabilities, outside of the base bailout costs. What a deal! Thanks George and Uncle Ben! Disaster.

Lets not bother to discuss the major government administration and human resource costs to manage the properties they (we) will now own. Property management and accounting are major, non productive expenses. Or, that the Government will only get the worst loans on the banks portfolio, the ones that have no chance of maturing. Yet they are still trying to sell to the populace that the Government can actually make money on this. Please, sell that stale government liars bread to the tourists.

Here comes the NEW NEW DEAL of 2008. Coming soon. Non productive, 0 sum gain government mortgage default management services, all subsidized by the tax payers, again. How many billion was factored for these expenses in this seat of the pants, 'save the day' bailout? I wager, 0.

The fundamental fact is that housing is a liability. By taking on hundreds of thousands of homes in an inventory saturated environment, the costs for the government just went up exponentially. Additionally, expect more and more unemployment as the government takes these over; because it means less realty agents, less state tax revenues, less county jobs, and less housing and commercial related service jobs (like utility workers, pest control, pool men, gardeners, etc). It will all just result in a major unemployment spike that will insure Depression II is now inevitable.

Oh wait...before you get too cheerful, consider that more prime mortgage defaults will come as the government is forced to dump these houses to compensate for their vast new collection of housing liabilities! Oops! Didn't think of that one, did you W?

9/19/2008: U.S. Real estate is immovable, is taxed equity, can be attached, is non liquid, has costs, and its value is questionable when in non liquid markets. Without an expectation of equity appreciation year over year, the costs of owning just don't justify an investment in housing at this time.

For the past decade, the network that survives on immovable assets has existed and thrived as consumers had adequate credit and capital. Vast networks of home insurers, real estate agents, and expanding state governments were built upon the growing economic conditions of the past 9-10 years. As we enter a recession or depression, the cost of these networks will become increasingly burdensome for homeowners, making housing far less attractive and affordable. The deterioration of credit will hinder not just sales, but the overall liquidity of housing. It will be difficult to determine what the home is worth without qualified buyers; and the foreclosure comps and appraisals will weigh heavier. This all will surely exacerbate unemployment as these networks are compacted. With all the bailouts, we can expect less help from the government... in fact a deterrence of banks and government to make housing accessible, after the collapse of Fannie and Freddy.

Home values cannot fully recover to the prices they once were, and the list of reasons is staggering. Less qualified buyers, more stringent lending practices, record foreclosures, multi year inventory supply, deflated comparables and appraisals, unemployment is up, interest rates are at record spreads, housing speculation is nonexistent, more damaged credit reports, less banks to borrow from, etc etc etc. The network that survives on immovable assets will contribute to more unemployment over time, resulting in even more systemic pressure.

Regarding housing, we can conclude that there will be far less market activity in the future. What about the loans they have now? We can expect record PRIME mortgage defaults, because home prices continue to decline and these top tier borrowers realize that prices wont come back for many years. The banks haven't considered writing these types of loans down yet, which means "we aint seen nothin' yet".

The economic circumstances for the next year are dire. Prime borrowers may also smell blood in the water and simply stop paying because they think there may not be a timely foreclosure. Maybe they want to hoard cash and renegotiate with the bank later. Maybe their job is on the edge; maybe they start hoarding on credit cards, which is the next major shoe to drop. Maybe they stop buying all together. Any semblance of a consumer revolt or a Baby Boomer run on the banks will certainly collapse the system...and deservedly so.

Fact is, ever since the state governments started taxing real estate, owning became a milder for of renting. All the significant 'cost of ownership' fee's make owning a home a bust without a significant annual equity appreciation. There is simply no expectation of equity appreciation in this market, further hindering the recovery into a vicious cycle of downturn. If the banks are tied to housing, and now we know Bank of America is heavily, then these banks are VULNERABLE. Some banks are better for storing cash, like Wells Fargo or Union Bank for their solid financials; please avoid Bank of America, as they have an overwhelming degree of speculative systemic risk; not to mention the Merrill Lynch acquisition.

------------------------ 9/19/2008 Wall Street Notes------>

Heavy losses for short sellers, as the stock market rallied almost 800 points over the past couple days. The Federal Reserve and the Government conspired and covered all their short positions via stealth, then made the huge bailout announcement and short selling ban on financials. Many smaller investors; who did their due diligence based on current market conditions, learned about how untrustworthy our government really is, and how they can change the rules on a dime. It changes nothing, all the same fundamentals exist...the government and the Fed just "cheated death" temporarily. I am predicting this to be a Bear Stearns type rally, just like when the Fed bailed them out in March '08. If you recall, the market rallied heavily, then faltered. We've seen this repeatedly this year of bursts and busts, going even lower than before. I would predict once this rally fails, we will start seeing deeper capitulation and DOW 8,500 or lower.

Don't trust any information coming from MSNBC, the government, the Fed, or Wall Street....nor anyone who is associated with these groups. You can tell who they are by their conclusions. They only seek to add credibility to the financial press and coerce you into thinking the stock market is a good trade; similar to how a realtor says now is the time to buy. They are motivated to get you deeper into the system to save their own asses; therefore you should do the opposite and exit the system, as soon as possible. Please see the article from Feb '08 entitled: True Market Analysis, or Self Interest?

These insiders know the truth about stocks: that these prices are about 75% inflated based upon the initial valuations to the corporate insiders. You buy "fluff" when you buy stocks: and the fluff gets carved off when these insiders know what happens next, and you don't.

These are very dangerous times and nothing is safe. We have seen artificial dollar strength over the past few months signaling deflation, seemingly based on a declining global economy. The alarming factor is that this is occurring simultaneously with record deficit spending, bailouts, national debt, and entitlement programs. We have speculators running to the dollar, and there is no where else to run. Once they exit the dollar trade, and now presumably reentering stocks, the dollar may collapse to unsustainable levels due to speculation on hyperinflationary measures by the Fed.

9/17 and 9/18 we are seeing more dangerous indicators of false security as the Dow rallies over 800 points in two days, on a massive federal bailout of all banking toxic debt. This article resonates what many of the users (on the right) have reflected in their comments, and it is a sign of a cohesive negative consumer sentiment.

The currency will have to be inflated in this environment? Imagine the damage that will be done to the dollar long term..

Looming ominously on the Horizon....the Credit Card Debt Bubble!

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