Saturday, April 28, 2007


Home vacancy rate rises to record 2.8%

I thought it would help to put some numbers together with the pessimistic rhetoric.

Of 127.3 million housing units in the United States, 17.6 million were vacant at the end of the quarter, including 2.2 million vacant units that were for sale, 4 million for rent and 4.2 million seasonal homes. The number of vacant homes for sale has increased by 599,000 in the past year, up 38%.

Compared with a year ago, the housing stock increased by 1.9 million, with vacant units rising by 1.5 million and occupied units increasing by 415,000. [Emphasis added.]

I guess those vacation homes bought as investments aren't working out. Building inventory is an old story. As Bill O and I drove around the northside looking at homes for sale, quite a few of them being vacant, we couldn't help but wonder when prices were going to start falling. When does the capitulation begin?


Friday, April 27, 2007


GDP at 1.3%

...and the Dow is up. As well as most of the other stock indices. Not surprising when you understand what is the catalyst for our economy: easy credit. You see, weak economic growth means that the price of credit, interest rates, are not likely to rise. As I have said before, when economic growth is the result of a bubble then the most important lynchpin to continued growth is keeping interest rates low.

So, you might be wondering, where are we now? The 1.3% GDP number on top of the continued weakness in the housing market is about as crystal clear as you can get. The one problem with this picture is the Terminatoresque stock market. Well, not so much of a problem when you understand the engine of growth has been the rising value of assets. Recently I saw a glaring example of a market pattern, a la Elliott wave, that made me say that we are far more likely to see higher prices in the stock market eventhough the economic signals are decidedly negative. This is not so strange because I have learned that the state of the economy is often not reflected in asset markets. It is the reason why I think the CAPM and efficient market hypothesis are poor ways to price stocks or consider the predictive power of technical analysis. So the fact that a weak GDP number, lower than the 1.8% estimate, did not hurt the stock market is unsurprising. This fact also makes it clear that the bubble is very powerful influence and this bit of knowledge should help us figure out what is going to happen next.

December 1999, you are here. I remember watching the stock market, the NASDAQ, in particular during this time. It was trading around 3500 at the time and its rise from 750 in 1994 was meteoric. Traders being who they are liked to short runaway markets and I was one of them. Luckily, I was trading small and keeping close stops because the run up from 3000 to 5000 in March, 2000 was just brutal for a lot of traders. My office was not far from the trading desk so I would sometimes walk over to give the clerks my orders and talk about what was going on. That is when I learned that I was not alone in trying to pick a top and I learned of a trader who just could not believe the NASDAQ could go from 3000 to 4000 to 5000 in 6 months. Well, he ran out of money before the market ran out of irrationality.

I think we are at that point where irrationality takes over and I am not alone.

Back in the 1999-2000 stock mania, my friend Jim Grant would on occasion call me while away from his office, asking: "What goes on?" To which I'd reply: "The market is open," meaning that by virtue of the market being open, it was up a ton, because that is in essence what was happening every day.

For those who don't recall, the reason that was the case was because we were supposedly in a new era, where productivity had trumped all of our problems, we were experiencing world peace and we would never, ever again feel the pain of the downside of the business cycle. Of course, what was really going on was that we had a bubble that was inspired by money printing.

Folks know how that ended, though the pain from the fallout of that bubble was never as extreme as it might have been, since the Federal Reserve successfully created a real estate bubble to bail out its burst equity bubble.


While euphoria sweeps stock markets here and worldwide, there are at least a few voices of dissent.

One, unsurprisingly, is legendary value investor Jeremy Grantham -- the man Dick Cheney, plus a lot of other rich people, trusts with his money. Grantham, chairman of Boston firm Grantham Mayo Van Otterloo, has been a voice of caution for years. But he has upped his concerns in his latest letter to shareholders. Grantham says we are now seeing the first worldwide bubble in history covering all asset classes.

Everything is in bubble territory, he says.



As Grantham points out, a bubble needs two things: excellent fundamentals and easy money. "The mechanism is surprisingly simple," he wrote. "Perfect conditions create very strong 'animal spirits,' reflected statistically in a low risk premium. Widely available cheap credit offers investors the opportunity to act on their optimism."

And it becomes self-sustaining. "The more leverage you take, the better you do; the better you do, the more leverage you take. A critical part of a bubble is the reinforcement you get for your very optimistic view from those around you."


As for timing, he concedes that's impossible to predict. But here's the kicker: Even Grantham thinks you probably need to be bullish right now. The reason? Most bubbles, he notes, go through a short but dramatic "exponential phase" just before they burst. Like Japan in 1989 or the Internet in early 2000.

"My colleagues," wrote Grantham, "suggest that this global bubble has not yet had this phase and perhaps they are right. ... In which case, pessimists or conservatives will take considerably more pain." [Emphasis added.]

Needless to say, please read both articles. It is nice to be in the company of Grantham. If we are right and the bubble is entering a pre-bursting, bear punishing phase then this is an excellent time to move into the safest investments. Take a hard look at the quality of the bonds that you buy and to look forward to see if the unwinding of the bubble will cause them hardship. What it definitely is not time to do is to jump onto the bandwagon. We have had enough bubbles and disappointments at this point to be steely in our emotions when it comes to the next big thing that is making everyone rich.

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Tuesday, April 24, 2007


An FBI Raid In Little Village

Where enforcing the law is controversial

The FBI and ICE raided a shopping mall in Little Village:
Federal agents in full gear, some holding machine guns, surrounded the parking lot of the Discount Mall in Little Village. As world of the federal operation spread through the community, demonstrators rushed to the scene. Most were unsure of what was happening, but they had heard that agents detained dozens of people inside the mall.

Rosanna Jimenez works inside and watched as the agents came in.

"They went all the way over there, Foto Munoz, where they take the pictures, and they start picking up people outside here. Everything was blocked completely. So we all got scared. Very scared," said Jimenez.

Twenty-second Ward Ald. Ricardo Munoz says agents confiscated film and a camera, but arrested nobody at Foto Munoz. Witnesses say they did arrest more than a dozen people and detained more than 200 in the mall.

Randall Samborn, a spokesman for the U.S. attorney's office, said in a statement that the office would hold a news conference Wednesday to release more information on an "alleged fraudulent identification document organization operating in Chicago's Little Village community."

The Little Village neighborhood has one of the largest Mexican communities in the Midwest.

The agents on hand Tuesday included FBI and immigrations officers who had search warrants for an alleged fake ID documentation organization. According to sources, a wide range of fraudulent documents were allegedly being made and distributed at the mall. But protesters say there was no reason to frighten the entire community over it.

"We are not here to stop anybody from enforcing the law. But there is common sense into this thing. Why do it in such a public way as to intimidate the people here in this community?" said Alderman George Cardenas, 12th Ward.
Perhaps because such a show of force was necessary? After all, the raid was conducted at 2pm. Less than 4 hours later, protesters, well organized and aided by Chicago police, were blocking traffic on 26th street.

Bill C adds:

As 2 Investigator Pam Zekman reports, it seems the father of a City Hall alderman is smack in the middle of the ID sales.

Last week, the peddlers were still at a shopping center off 26th Street in the Little Village neighborhood, flashing the sign they had fake ID’s for sale.

One peddler took CBS 2 producer Simone Thiessen to Foto Munoz to get a picture for her fake ID.

"Within seconds one of them offered to sell me fake ID’s for 300 bucks," Thiessen said.

The studio is owned and operated by Elias Munoz, the father of Ald. Ricardo Munoz (22nd). [Emphasis added.]

Please note that this story is from last year at this time. You would think that they could have collected enough evidence to shut down an operation like this since the Feds have known about it for at least a year.

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Stocks could be set for a huge rally

My last trade was a short stock position which was stopped out at 12,670, Dow futures. Right now I am looking at the Dow, and stocks in general, and we have set up for a potentially huge rally which could take us between 13,500 to 14,000 by June. (Remember, predicting time is the weakness in Elliott Wave forecasting.) I will know I am absolutely wrong if the Dow hits 12,428 but we should get no where near that area. A correction of maybe 200 points from current levels (12,950) is possible.

Given my certainty I wish I could say that there is a great trade here. Maybe a long call option which would limit the amount you could lose without a stop. Also, I do expect this rally to be rather fast. We won't be sitting at 13,000 for several months. If we do see a correction in this uptrend I will give more thought to a trade.

Given how people look to round numbers like 13,000 as major obstacles I think we should cross over that barrier and fly higher. Now I am getting beyond the scope of the theory. Just remember the waves have lined up to signal a continuation of the rally over the next couple of months, at least.

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Inhofe Spotlights Hollywood

This needs more attention (via Drudge):

I simply believe that former Vice President Al Gore and his Hollywood friends who demand we change the way we live to avert this over-hyped 'crisis' not only talk the talk, but walk the walk," said Sen. James M. Inhofe, Oklahoma Republican.

"How hard is it for these elitists to become as frugal in their energy consumption as the average American? I think the American public has a right to know they are being had.

Sunday, April 22, 2007


What a Clown

Paul Campos has beclowned himself. He did it in the usual way, by arguing loudly about things he does not understand. - Instapundit

I think Lawrence O'Donnell has also beclowned himself. He is loud and he is wrong. Video at Hot Air:

So misinformed is he that I’m tempted to assume it’s willful. But I’m sure it isn’t — if the left’s leadership on gun control doesn’t know what it’s talking about, why should a B-list pundit like Scary Larry?


When a 3 year old is asked about monsters

This is pretty cute:

Friday, April 20, 2007


Empty Plate

This from Tom Plate at CNN is ridiculous:
Our famous Constitution, about which many of us are generally so proud, enshrines -- along with the right to freedom of speech, press, religion and assembly -- the right to own guns. That's an apples and oranges list if there ever was one.

Mr. Plate ignores the right to self defense in order to distort. His apples and oranges list makes as much sense as this: The freedom to shout down anyone at anytime and anywhere, to burn flags, to kill unborn babies, to form a destructive mob -- the right to self defense.

The rest of his argument is not any better. He tells of a time he was held up at gunpoint in an alley:

Last month, I was robbed at 10 in the evening in the alley behind my home. As I was carrying groceries inside, a man with a gun approached me where my car was parked. The gun he carried featured one of those red-dot laser beams, which he pointed right at my head.

Because I'm anything but a James Bond type, I quickly complied with all of his requests. Perhaps because of my rapid response (it is called surrender), he chose not to shoot me; but he just as easily could have. What was to stop him?

Given the situation, I'm not arguing with Plate's actions in the alley. But he seems to suggest that immediate surrender is the proper response to threat of violence. This is a terrible message to convey. Getting fleeced one night in an alley to avoid a potentially deadly confrontation is one thing but to limit one's self defense options so as to be slaughtered like sheep in a situation such as the Virginia Tech tragedy is entirely different.

Thursday, April 19, 2007


Political Correctness or Civility?

Jonah Goldberg mistakes political correctness with civility.

I'm all in favor of acid wit and barbed satire. But too many partisans on both sides sound like Beavis and Butt-Head, tittering over trivia. More important, if political correctness is as absurd as so many people think it is, why is it so successful? This newspaper, your local schools, police and fire departments, city hall, your church and workplace all likely subscribe to vast swaths of what was once called a politically correct agenda, from rules barring sexual harassment to the language you can use in casual conversation or e-mails. Surely if P.C. is the Orwellian imposition so many conservatives claim it is, Americans would reject it the way they resisted other alien impositions, such as the metric system, bidets, or David Hasselhoff’s Germanic personality cult.

The reality is that much of political correctness — the successful part — is a necessary attempt to redefine good manners in a sexually and racially integrated society. Good manners are simply those things you do to demonstrate respect to others and contribute to social decorum. Aren’t conservatives the natural defenders of proper manners? [Emphasis added.]

I think Jonah is wrong because he is defining political correctness (PC) as being civil to people of other races, creeds, nationalities, etc. This definition is slanderous in that it presumes that before PC Americans where not civil to people who were different than themselves. This is simple not true. America is a nation whose very existence is owed to people who wanted to live in peace with others. Our history of slavery and eventual overthrowing of its regime is testimony to the struggle and great cost to America in order to make all men equal under the law. Only an anachronistic morality would hold the America of yesteryear to today's standards.

Jonah Goldberg's praise of PC thinking for America's growing civility denigrates those who came before to fight for our freedoms. Those Americans who campaigned for tolerance before the term political correctness was invented. An abiding belief in the rights of man is the reason that America is the accepting place it is today. The group identity politics of the PC movement is anathema to individual responsibilty and to free and open debate about critical issues relating to race and gender. PC thinking hinders honesty, it is a pox on our civic life, and deserves a place in the ash heap of history.


What passes for intelligent debate from the left

Don't go to this YouTube "tribute" to Cho Seung-Hui if you don't want to be pissed off.

The left has been making the argument that Cho's murder spree is the result of the ease in which he bought the two pistols. I can't deny that it was easier to walk into a gun shop and buy a handgun in VA. than in Chicago, for example. Of course this is the reason that the murder rate in Chicago is so much lower than Virginia's. My answer to this argument is do you think a gun ban would have deterred Cho from killing? If Cho could not have found a handgun on the planet earth could he have killed a lot of people? Timothy McVeigh did not use a handgun to kill far more people.

Given the world we live in, reality based if you will, what is the best way to stop killers like Cho? I think the best way is to allow trained citizens with clean records to carry guns. Isn't that a lot more likely to stop a killer than a ban on guns? If such a ban took effect today there would still be guns on the street. There would still be cars. There is evidence that guns in the hands of students and teachers have prevented attacks. Looking at this from a logical point of view, allowing some of the students and faculty, some of the victims had military training, to carry guns was a far more realistic way to have stopped a school shooter than a general ban on owning guns.

It was the ban on guns of V-Tech's campus which put these students in jeopardy. Gun free area really means no guns for the law abiding.


The Gun ban and the gunman

Virginia Tech's gun-free zone left Cho Seung-Hui's victims defenseless.

War Over Firearms

People don't stop killers. People with guns do

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Gang members tagged with GPS

Big Brother is watching you, criminal, and that doesn't bother me so much.

San Bernardino county wants to start tagging gangbangers with GPS transponders. County commissioners have applied to the state to be part of a pilot program that would monitor all offenders who are released from jail after serving time for gang-related activities.

The program, which the county has started implementig on its own, is an innovative attempt to tackle the problem of gang violence, but it builds on similar California initiatives already underway. Last year, for instance, California voters enacted Jessica's Law, which forced all sex offenders to live more than 2,000 feet away from schools and parks. The law also require that all felony sex offenders submit to GPS-based electronic monitoring—for the rest of their lives. That's right, the bracelets need to stay on even after sentences are served and parole is over.

Technology is great for keeping track of criminals. Of course, there might be a problem with jailing the wrong people when idiots fail to account for daylight savings time.

A fifteen-year old boy in America was incarcerated for twelve days, wrongly accused of making a hoax bomb threat - because his school had forgotten that the clocks had gone forward.


'They just started flipping out, saying I made a bomb threat to the school,' he told local television station KDKA. After he protested his innocence, Webb says that the principal said: 'Well, why should we believe you? You're a criminal. Criminals lie all the time.'

All charges against Webb have now been dropped.
Read the whole thing for the whole stupidity.

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Wednesday, April 18, 2007


If you want to learn more about Fred Thompson

Here is a very good profile from the Weekly Standard.



The High Cost of Easy Credit

Steve Woodruff of the Missoulian (Montana) wrote an opinion piece about property flipping which touches the heart of the problem when it comes to property speculation caused by easy credit.

Of greater concern locally is the reality that people seeking quick profits help bid up the price of housing. When people seeking to maximize their investment gains shop for second or third houses as an alternative to buying, say, stocks and bonds, families seeking the American Dream of owning a home wind up in a bidding war.

It's a war the average Missoulian is losing.

Easy credit breeds speculation. While I am not opposed to people putting their money at risk I am greatly worried that something like the Greenspan Put will socialize the cost of failed speculation. Risk without cost is asking for the worst sort of financial fraud and mindless speculation.

Last month, the Missoula Organization of Realtors reported that the median price of a Missoula home was $206,850 - up nearly $20,000 over the past year alone. To afford the median-priced house in this town, you'd need a household income of more than $58,000. The median household income in Missoula, however, is just $43,200. What that means is the average family can't afford the average home in our town.

This is a huge and increasing problem, reflected in part by the closure of several Missoula schools: Young families with school-aged children find it difficult to live here. Mortgage foreclosures are up more than 20 percent over the past two years, suggesting even people who manage to buy homes here can't always afford them. The percentage of Missoulians who own homes hovers at 50 percent, far below the national average of 68 percent.
Please read the whole article. I added a comment but I'll be darned if I can figure out what happened to it. So here it is.


Excellent article on the effects of property speculation but you are missing the driving force behind it: cheap and easy credit. Speculators would not be able to drive prices higher if it weren't for the ease in which lenders lend to marginally credit worthy customers. The credit that is being extended is coming from banks who, in turn, are borrowing from our Federal reserve system. Ultimately, all speculative bubbles are caused by too easy credit coming from a central bank which doesn't reign in lending when the the signs of speculation, a disconnect between asset prices and income, are apparent.

Someday, probably after much economic pain, we must reform our monetary system so that asset price inflation is targeted in the same way that consumer price inflation. Or we should go back to the gold standard. Either way, specualtion is an intergenerational transfer of wealth which is profoundly destructive to society.
Upon reflection I think this article is giving us a glimpse of the future. Childless, elderly Boomer couples driving middle and working class families out of desireable neighborhoods by refusing to fund public schools.

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When do our protests cross into censorship? If someone doesn't like a broadcaster then don't watch/listen. How about letting other people know that you find it objective? How about letting their sponsors know you find it objective? Imus' defenestration is troubling to me only in that it gives creditability to the race hustlers. But I really can't object to them complaining, afterall, that is their right. I want to have the same right to complain about others who I find offensive like Rosie. But I doubt that what any of the complaints will have any affect until it hits ABC's bottom line.

I think Imus' firing really bothers a lot of libertarians because we want to defend the rights of minorities, especially free speech. However, there are community standards which the majority of people want to see upheld particularly on public airwaves and that is not necessarily a bad thing. Imus will be back on a smaller medium; probably satellite. He won't be silenced and will be more free to say what is on his mind. The only difference being those who want to hear him will have to spend a little more time and effort. No one is owed the right to speak via any media. We are just guaranteed the right to speak. The market will determine if what we say is broadcast.

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Tuesday, April 17, 2007


The English Pound is over $2.00

That is, it takes more than 2 bucks to buy a pound. Everyone should be an international investor and part of that is keeping an eye on currency rates. Apart from that is the fact that America is dependent on foreign investors to finance its economy. Crossing big, round numbers like $2/Pound catches peoples attention and a run on the dollar is one of the worries I have for our economy. So far, our equity markets are holding up. If the dollar keeps falling this will be a problem for stocks.

As you know I was stopped out of the short position in the Dow at 12,670. I think that a new high in the Dow is inevitable. We were briefly in new high territory today but closed just under. Expect to see it in the next week if not tomorrow. I am watching the stock market but really have no opinion at this time other than after 4 years this rally is a little long in the tooth. Even so, there is no good entry points for a long or short trade at this time.

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Monday, April 16, 2007


Quote of the Day

"I think it's fair to say that we believe guns don't belong in the classroom," Hincker said. "In an academic environment, we believe you should be free from fear."


Jowyk began researching his law school's gun policy following the January incident in which a disgruntled student at Appalachian Law School, Peter Odighizuwa, allegedly shot and killed the school's dean, a professor and a student on campus before being subdued by two armed students, Mikael Gross and Tracy Bridges.

Gross and Bridges reportedly ran to their cars to fetch their own guns and returned to confront Odighizuwa, who surrendered after allegedly initiating a fistfight.

Jowyk was heartened by the students' intervention. But looking into GMU's gun policy, Jowyk found to his dismay that the school's board of visitors had in 1995 passed a ban on all weapons, concealed or otherwise, except by law enforcement officials.

Anyone who violates the school's gun ban would face administrative repercussions but not criminal charges, according to Jowyk.
And this.

"I support the 2nd Amendment, BUT..."

As VCDL president Philip Van Cleave always says: when you hear those words, watch out for what comes next.

In this case, it wasn't a politician playing semantics, but a college student who, presumably, can't do too much damage. His comments came following a debate on Virginia Tech's weapons ban; even students with a valid Virginia concealed carry permit face expulsion if caught with a gun on campus.

The students got a lesson in the disadvantages of disarmament recently when a Blacksburg jail inmate grabbed a deputy's gun, shot him and a hospital guard, then became the object of a manhunt for the next several hours. Virginia Tech students were instructed to huddle and cower in their dorms, missing the first day of class.

Bookworm has a lively discussion of the shooting in Virginia.

Thursday, April 12, 2007


False Accusations

Comments on those who make false accusations of rape from the NY Post (via Drudge) :

They should be given no encouragement whatsoever to believe they can launch a nuclear weapon at someone's reputation and escape unscathed.

Her name is Crystal Gail Mangum, and she should not escape the world's scorn because she is poor, or because she is black, or because her life circumstances led her to work as a "stripper.

Wednesday, April 11, 2007


What a week!

Between Imus, Birkhead finding out he was the father, and the Duke rape case being dropped I haven't seen a week of news like this...ever. I plan on commenting on some of these developments in the near future but first I want to point out some good news coming from the world of science. A new cancer treatment that promises to drastically cut the bad side effects of chemotherapy drugs by making them more effective.

The scientists grew cells from human lung cancers in the test tube and tested the ability of anti-cancer drugs such as Taxol to attack them after treatment with RNA-interference (RNA-i).

The RNA-i technique in this experiment was designed to "silence" or switch off certain genes in the tumour that appear to be turned on as part of the cancerous process. This made the cells dramatically more susceptible to the anti-cancer drugs.

On top of that Inna and I went to the doctor this week and she told us to start thinking about when we want to have the c-section. She gave us a window of one week: May 10th to 17th. We are discussing this but we would like to get your input. I must say I am not partial to the 17th as I am an egoist who wants to keep that day special to yours truly. ;-)


Stock market should start down now

The Dow futures are at 12548 as we speak, slightly above the 12525 I originally suggested for shorting the market. My methodology does take the time of a movement into account but it is subordinate to price. Given that, I was surprised the market rallied after 3/28/07 and it has given me pause. The structure of the decline on 3/28 and the potential for the beginning of a major bear market should have meant that the rally off the 3/14 low was not as strong or as long in duration. I think this should push the idea that we are in for a major decline soon into the background; i.e., it is still possible but more likely that we are in a correction which will lead to new highs or that a correction was completed on 3/14.

My new stance requires that I lower the stop order from 12850 to 12670, just above the most recent peak on 4/09.

Recent developments in the interest rate markets have caught my eye. I did not really have much of an opinion on interest rates other than I would expect signs of a weakening economy would mean lower rates over time. Short term, anything could happen and it did when the March non-farm payrolls came in at 180,000 which was 50,000 more than expected. (Remember that employment is a lagging indicator. This should make sense, business' try to cut costs in other areas before they lay off workers especially with a highly skilled work force.) This pushed interest rates higher. Also, Helicopter Ben is speaking today and apparently he said something that spoked the debt markets because they took a dive at 1 p.m. (Chicagotime) when he was scheduled to start speaking. I haven't been able to find anything in the news as of now but I come back to it later.

One thing that the housing market really does not need is higher interest rates. In fact, lower rates are desperately needed to counter the fact that banks are raising lending standards. Bill Gross, head of PIMCO, recent commentary called Grim Reality points out that the real danger is not the defaults on loans which will not be a large percentage of home loans. The danger is the loans that banks won't make that they have been making.

Bulls and bears argue over websites as to the percentage of all lending that subprime and alternative mortgage loans provide but while important, the argument obscures the critical conclusion that tighter lending standards and increased regulation will change the housing outlook for some years to come. As past marginal buyers are forced to sell their home to prevent foreclosures, so too will future marginal buyers be restricted from buying them. No one really knows the amount that homes must fall in order to balance supply and demand nor the time it will take to do so, but if one had to hazard a conclusion, it would have to be based in substantial part on affordability statistics that in turn depend on financing yields and home price levels in a series of different scenarios as outlined in Chart 2. The chart shows the amount that home prices or mortgage rates (or a combination of the two) need to decline in order to revert back to affordability levels in 2003, a year which might have been the last to be described as a "normal" year for home price appreciation. Since then, 10+ annual gains have been the rule whereas average historical estimates provided by Robert Shiller may have suggested something on the order of 4-5%. By that measure alone, homes are likely 15-20% overvalued (3 years x 5%+ annual overpricing). Chart 2, in addition suggests much the same thing. If mortgage rates don't come down, home prices need to decline by 20% in order to reach prior affordability levels. If rates do come down, home prices will drop less.

You'll have to find chart 2 for yourselves. Fair use and all. Gross' point is that a 20% drop in home prices is baked into the cake but if interest rates fall then the marginal buyers and those on the edge of default could be saved by refinancing. He figures that a fall of 120 basis points for mortgages (Approximately 5.00%) would mean prices could stay at current levels. Gross' conclusion is that the Fed will be predisposed to cutting rates for the next several years to shore up housing. I agree, that is, if the market let's the fed cut rates. With the importance of foreign financing of our debt the dollars value has to be taken into account. The euro is flirting with new lows and the pound is around 1.98. Expect a falling dollar to make the news when the pound is over 2.00.

So the Fed is walking a tightrope between the currency and debt markets. The Fed needs the dollar to get strong and interest rates to go down. Two events which work against each other. Actually, what the Fed really needs is for the housing market to stabilize. They are playing a waiting game hoping the housing market does not hurt the economy too much because the Fed is limited in how much they can affect interest rates because of a weak dollar. This is the definition of between a rock and a hard place. The Fed has no one to blame for our precarious position but itself. These are the fruits of an asset bubble- it's almost impossible to prevent the bust once asset prices start to fall.

Tuesday, April 10, 2007


The credit crunch is spreading

Next up is Alt-A, not as bad as subprime but not quite prime. (Via TheHousingBubbleBlog.)

Delinquency rates for Alt-A mortgages are rising.

“In February, 2.6 percent of Alt-A loans were delinquent by 60 or more days, up from 1.22 percent a year before, according to FirstAmerican LoanPerformance.”

“Until recently, mortgage companies had been able to sell loans to Wall Street banks and other investors. ‘Now you are selling at par or lower in some instances,’ said Thomas M. McCarthy, a managing director at a real estate investment firm that brokers the sale of mortgages. ‘It really throws the business upside down.’”

“‘Alt-A seems to be located regionally in spots where the market is having a great deal of difficulty, particularly in Las Vegas, Arizona and Florida,’ economist Mark Zandi said.”

As a consequence, trading volume and prices of these mortgages are down.

The head of mortgage research at a European bank in New York said: “It’s not a very liquid market. I would expect there to be a great deal of tiering, depending on the collateral. There are some toxic loans, which are showing extraordinary high defaults. They are typically second liens, low documentation and recent vintages, which people are getting dinged on.”

When that happens first time buyers can't get the financing to buy or they have to cut back on the amount of house they would buy.

While the Fort Worth, Texas-based company saw orders fall in all regions, the biggest decline was in California, where they fell 59 percent to 1,107 homes. California was also the market that saw the biggest dip in dollar value of orders, down about 57 percent to $533.5 million.

Prospective buyers canceled at a 32 percent rate from January to March, down from 33 percent in the prior quarter, but above the usual 16 percent to 20 percent rate, D.R. Horton said.

It has become more difficult for many buyers to obtain mortgages as lenders have tightened their underwriting standards. The steeper decline in the dollar value of D.R. Horton's home orders, relative to the number of orders, suggests that some buyers are "downsizing" to buy homes they can more easily afford.

I would think that this is going to hit consumer spending soon. Mom and Pop Investors has a couple of good posts on real estate.

Tales from the front: Florida Flippers in Trouble

Foreclosures Are Rising Even in Ritzy Chicago Neighborhoods

Monday, April 09, 2007


America vs. liberals

From Drudge, two tales of liberals reacting to Americans being American.

The first story is about Marines in Target being targeted for wearing their uniforms.

"I didn't want to make a scene," Rodriguez said. "We were representing Marines anyway just by wearing the uniform, so I kept my mouth shut."

Then, Rodriguez said, "this retired Navy SEAL came up behind us and he said, 'You forget what... country this is,' and he goes off on (the assistant manager) saying, 'You have no right to throw them out of Target just because they are talking to one of your employees.' "

"He got everything out in the open that I was thinking, so I kind of left with a grin," Rodriguez said.

I just bought $1500.00 dollars worth of baby furniture, supplies from Target and I plan on writing a letter to the company asking them to apologize to the Marines involved and to reprimand the manager who jumped to conclusions about their purpose in the store. Target also partners with Amazon, I can buy my books and baby stuff at other stores.

The second story is a typical liberal reaction to an old school American who doesn't countenance trespassers.

Elizabeth Edwards says she is scared of the "rabid, rabid Republican" who owns property across the street from her Orange County home -- and she doesn't want her kids going near the gun-toting neighbor.

Edwards, the wife of Democratic presidential candidate John Edwards, particularly recalls the time neighbor Monty Johnson brought out a gun while chasing workers investigating a right of way near his property. The Edwards family has yet to meet Johnson in person.

OMG, a man from the country who greats strangers walking around on his property with a gun. The problem is that as a liberal, Elisabeth Edwards, has an irrational fear of guns. Guns are responsible for killing so the only safe option is no guns. You would think she would try and start a dialogue with him to get his point of view. Maybe he has a good reason to chase interlopers off his property.

Johnson said he has lived his entire life on the property, which he said his family purchased before the Great Depression. He said he's spent a lot of money to try and fix up the 42-acre tract.

"I have to budget. I have to live within my means," Johnson said. "I don't have millions of dollars to fix the place."

Johnson, who has posted a "Go Rudy Giuliani 2008" sign on a fence just 100 feet from the entrance to the Edwards' driveway, has criticized Edwards for the scale of their nearby home. The property and home, which includes an indoor basketball court, an indoor handball court and an indoor pool, is valued at $5.3 million.

A "Rabid, rabid Republican" in Edwards' mind owns a gun, protects his property, and supports Rudy Giuliani. This is what happens when limousine liberals move into the sticks. Their values clash with the locals. Unfortunately, it appears the Edwards are going to drive this man from his property. (See the last line in the article.) With their behavior I wouldn't want to live across the road from them either. The Edwards do have a sense of entitlement.


Housing Slump Pinches States in Pocketbook

The effects of a slowdown in housing will be far and wide.

Chris McCarty, survey research director at the Bureau of Economic and Business Research at the University of Florida, said it would be foolish to “underestimate the effect that the inability to extract equity from homes is going to have.”

In one hint of how much Floridians were relying on property wealth during the real estate boom, 16 percent of new car purchases here were being made with home equity loans in 2006, compared with 7 percent nationally, according to CNW Marketing Research, an automotive research firm in Bandon, Ore. In California, the percentage was even higher — about 30 percent, said Art Spinella, the firm’s president.

You might want to steer clear of bonds that depend on tax revenues from the biggest bubble states.

Wednesday, April 04, 2007


Giuliani for public funding of abortions

It is getting harder and harder to ignore Rudy's liberal tendencies. I think something like coming out for public funding of abortion was the last spike in the track for Rudy's campaign. That is when people start paying attention to the campaign for president which I am convinced they are not. Otherwise Rudy would not be in first place in the polls. Of course that could change really fast.


Protestors Pelt Rove

A metaphor for the Iraq war.

What should happen when a presidential advisor has "unknown" objects thrown at him?

Arrests for assault or nothing?

The students then got on the ground and lay down in front of his car as a protest. The students said security officials picked them up and carried them away so Rove could leave. Police said they have dealt with a lot of protests on campus and this one was handled peacefully. No one was arrested. [Emphasis added.]

That's right, nothing. They attack you and nothing happens to them. And what does this accomplish? It let's future protestors know that they can get away with attempted assault and they will try it again if given the chance. Like in the Iraq war, the RoE with protestors are too restrictive- they end up doing nothing to these violent punks. Nobody is surprised when protestors get away with this and others go on to attack on another day.

So how did the previous administration handle dissent. They threw the book at them.

Suddenly, he was interrupted by a voice from the rear of the room. It was Bill Kelly. "How can you claim gridlock when the House and Senate are controlled by members of your own party?" asked Kelly. "You promised a middle-class tax cut. Now you are proposing the largest tax increase in American history. What you need to do is abide by your original campaign promise of a middle-class tax cut."

Kelly was quickly escorted out, with the President lecturing his back--and the cameras: "This is not your meeting, sir. Most people have better manners than to interrupt somebody giving a speech. I might say that's another thing wrong with this country. There's not enough civility in how we treat one another."

Three hours later, federal agents surrounded Kelly's family home, put him in handcuffs, and took him to the Metropolitan Correction Center (or the Black Hole of Chicago, as some call it), where he was interrogated and stripsearched, and, as he tells it, "spent the next 27 hours moving from [a] solitary cell to the federal lock-up with drug dealers and bank robbers in handcuffs and leg irons."

Kelly was then taken to court, charged under a catchall title of the U.S. Code with being in the same area of a building as the President of the United States, and released under a general agreement requiring that he not get arrested again for a similar crime--which means, apparently, avoiding all places where Presidents may be visiting.

Nothing was thrown at Clinton. Just words that Clinton did not want to hear. A very minor case of heckling as Kelly did not insult or swear. For this William J. Kelly was interogated and strip searched. Yet Rove's protestors walk. Will the White House object to local police? I doubt it. They seem to have a live and let live policy which seems really stupid to me. The attacks against them are going to get worse unless they insist that protestors who resort to violence are charged with the most serious crimes. Like the policy in Iraq where an insurgent could drop his weapon after firing and our soldiers could not fire at an unarmed man, we are just making it easier for the enemies of this nation to attack.

Tuesday, April 03, 2007


Alanis Morissette "My Humps"


Diego adds: That IS hilarious! I'd like to see more of this! How funny it is to hear such songs played on piano and sung with even a hint of seriousness. Ben Folds did a similar peice on a Dr. Dre/Snoop Dog track last year (WARNING: the video below is filled with cuss words).

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