Hello Moonlight: I ahve to do a short review of Michael Covel’s Trend Following book, but in chapter 6 it details why people do this. I went through it with my wife last year. Until I read this book I didn’t understand this. A lot he says, and I’d agree has to do with the education system, we aren’t really taught to be problem solvers and creative thinkers. Take care
The Option Arms have the potential to do possibly more damage to housing prices and the economy than the Subprime. The Subprime wave is nearing its end. The Option Arms are just getting started. But they will hit as the economy is already struggling and unemployment is increasing. To really understand the impact of the Option Arm, need to understand how they work. One can make a choice from several payment options: Principal & interest, Interest Only, or Negative Ammortization. In the case of Neg Am, the amount owed increases until it reaches a certain amount- say 110% to 125% of the original balance. Once that happens, the borrower must then revert to a P&I payment. So, unlike subprime where borrowers saw their payments maybe double after the teaser rates ended, Option Arms will see theirs triple (Neg Am to P&I). No way any of those folks will make that payment. Even scarier is that close to 2/3 of all Option Arm borrowers are doing the Neg Am payment. Most of them also got 90-100% financing, and most of these were done in 04,05,06,07. So basically all those houses are underwater and once the loan resets, they are going to walk. Move up housing will be more at risk than entry level as well since those were the buyers that used Option Arms.
Kman
Hi Davos,
It seems getting hold of Michael Covel’s Trend Following book is a must!!
Along the lines where you wrote :-
" A lot he says, and I’d agree, has to do with the education system, we aren’t really taught to be problem solvers and creative thinkers."
…had me grasping for two films from my You Tube account (one of which you’ve already used in your Daily Digest a while ago), but more importantly, John Taylor Gatto’s ‘The Six Lesson Schoolteacher’ that I’ve placed beneath those and have also worn as part of my signature for well over a month :-
How Television Effects Your Brain
http://www.youtube.com/watch?v=_acfHQiIhk0&feature=channel_page
How Millions Of Americans Will Lose Their Homes
http://www.youtube.com/watch?v=biP2JOf5euo&feature=channel_page
The Six Lesson Schoolteacher
http://www.cantrip.org/gatto.html?seenIEPage=1
As long as I keep these three bouncing around clearly at the front of my thinking, everything else, including all of the above subjects in both posts and Chris’s ‘Crash Concepts’ all lock happily into place…
Best,
Paul
Hello Paul:
I’m watching them now, thanks! Take care
I wonder if this is similar fuzzy reporting:
Durable goods orders rise unexpectedly in February
Orders for large manufactured goods unexpectedly rise in Feb. after record 6 straight declines
http://finance.yahoo.com/news/Durable-goods-orders-rise-apf-14740044.html
But the chart here at Briefing.com seems to show orders are still way down from previous years:
http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/durord.htm
How can a debt based economy have the necessary growth for survival if orders are not positively increasing year to year?
Woodman - this is exactly more of the same. There is a concerted attempt to paint a picture full of hopeful signs despite the fact that the underlying economic structure continues to deteriorate. Defense procurement and likely other government related spending underlies the small change being touted.
The market is up again at the moment but eventually (hours, days, weeks - hard to say) reality will reassert itself. The following link was posted in the US markets forum:
http://market-ticker.denninger.net/
Here is a link to the thread:
<a href=/comment/26065#comment-26065" rel=“nofollow”>https://peakprosperity.com/comment/26065#comment-26065
Tom - great eye…I have been typing that up this morning…but then the New Home sales came along and was just too juicy… but now I am back working on the durables report.
More shenanigans…will post to the blog soon.
Here is an excerpt from the NYT reporting on this latest “ray of hope”
[quote]“You don’t want to make a trend out of any one month,” said Adam York, an economist at Wachovia Economics. “But we’ll take the good news where we can get it, and here and there we’re seeing some smatterings of less-bad economic data.”
But details of the data on durable goods gave economists some pause, and Mr. York said the positive headline number was basically a head fake.
The bounce in durable-goods orders followed large downward revisions to January data, and that orders were rebounding from extremely depressed levels. And even with the 3.4 percent gain in February, orders for durable goods were down 28.4 percent from a year earlier, the government said.
And economists said that forward-looking indexes of manufacturing activity are still bracing for months more declines as businesses cut jobs and capital spending in an effort to survive the broad global downturn.
“The underlying state of industry is still deteriorating,” Ian Shepherdson, chief United States economist at High Frequency Economics, said in a note.
Excluding defense, new orders increased 1.7 percent last month.[/quote]
http://www.nytimes.com/2009/03/26/business/economy/26econ.html?hp
It seems that the "unexpected" rise in home sales is repeated in the entire world. At least in Germany.
Full German article (Financial Times Germany): http://www.ftd.de/boersen_maerkte/aktien/marktberichte/:Dax-Stoxx-Schlussbericht-US-H%E4userverk%E4ufe-geben-Dax-Auftrieb/491923.html
Schwache Konjunkturdaten belasteten zunächst die Börsen in Deutschland. Die Stimmung in den Chefetagen der deutschen Wirtschaft hat sich im März weiter eingetrübt und zunächst kaum Hoffnung auf Besserung genährt. Dies reflektierte der Ifo-Geschäftsklimaindex, der im Februar um 0,1 auf 82,1 Punkte zurückfiel. Analysten hatten mit 82,2 Punkten gerechnet.
Im Verlauf euphorisierten jedoch positive US-Daten die Anleger. Sowohl Zahlen zu den verkauften Langlebigkeitsgütern als auch besser als erwartete Daten zu den US-Häuserverkäufen ließ die Stimmung an den Börsen steigen. Zudem sieht US-Präsident Barack Obama erste Anzeichen für eine leichte Verbesserung der weltweit größten Volkswirtschaft.
Here’s the translation:
The German stock exchanges were stressed initially by weak economic data. The mood in the executive floors of the German economy has blurred once again in March and at first didn’t raise hope for recovery. This was reflected by the Ifo business climate index, which dropped 0.1 points to 82.1 points in February. Analysts expected 82.2 points.
Later on though, investors were euphoric due to positive U.S. data. Sold durable goods as well as better than expected data on U.S. home sales raised the spirit. Furthermore, U.S. president Barack Obama sees first signs for a minor recovery of the world’s biggest economy.
Michael, that’s chilling. This really points out what a house of cardsthe (global) economy is, for investors to be euphoric over vapor-data.
It reminds me of that excellent Vanity Fair article about Iceland where
the investors were selling things to each other and jacking up the
price and selling it back to each other and calling themselves rich. Of
course this will evaporate, as vapor is wont to do.
Fills me with confidence… 
Chris,
Excellent and informitive post as usual.
I do have a question regarding one major point that you made:
"…290k seized properties (many of which count as "sales" in the NAR methodology) times 12 months gives us 3.48 million homes in default, slated for auction, or seized."
By mixing foreclosure data with organic house sales, the NAR and the
press have badly misrepresented the actual condition of the housing
market.
What evidence is there that the data set for existing home sales contains seized homes? According the the NAR website:
The monthly EHS economic indicator is based on a representative sample of 160 Boards/MLSs.
NAR captures 30-40% of all existing-home sale transactions with
its monthly survey. The data provide the total number of closed
existing-home sales in each association/board/MLS…
The NAR website does not mention the dataset including siezed homes. A foreclosure typically happens via a trustee’s sale at a county courthouse. The only evidence of that event actually happening would be a deed being recorded. The Multiple Listing Services (MLS) that NAR surveys typically would not include those deeds in their data. The data collection process to get that info would be beyond the scope and mission of local MLSs.
Thank you,
Philip