Always look on the bright side of life...

In search for a good laugh and a great topic for today's post, I stumbled upon the National Association of Realtor (NAR)'s monthly housing fantasy ... err... economic forecast by their Chief Economist Lawrence Yun.

Dr. Yun's qualifications on housing finance come from his 10 years working in the NAR (which famously predicted the housing boom would continue into 2009),  stints as a consultant with the Department of Veterans Affairs and Department of Education, and studying the great free market housing finance of the Soviet Union. He's even been named as one of the top 100 economists by the prestigious news publication, USA Today.

After listening to his podcast, several words came to mind: delusional, self serving, pollyanna and finally understatement. My high school friend Rustin W. of Oregon had suggested "understatement" for one of my posts. Thanks Rustin!

According to the dictionary, understatement makes something appear smaller or less important than it really is. It can be used to entertain (typical British Humor) or to reduce the importance of the truth (typical NAR).

Dr. Yun sees encouraging signs in the housing market as existing home sales were 23% higher than last year (which was the lowest level EVER). Great News!! More sales! We should expect the worst to be over and home prices should be rising, right? The NAR desperately believes so.

(Source: Federal Housing Finance Agency)

Understatement.

Dr. Yun goes on to say the worst of the job loss is over. 500K new private industry jobs have been created in the last six months. Last month 30k of new private sector were added. Understatement. 

Realtors make their money on sales. The more sales the more money they make. It doesn't matter if the seller is a homeowner, a bank or a government. The New York Times recently published an article on Mr. Bill Bridwell of Golden Touch Realty, a realtor in Arizona who sells Fannie Mae foreclosed properties. Fannie Mae foreclosure sales represent fifty percent of Mr. Bridwell's business. Investors purchase many of these foreclosure properties. I wonder what percentage of expected existing home sales are from foreclosures due to foreclosure sales to investors? 

Dr. Yun says the housing money has to "get back on its own feet without any government stimulus" in the next few months. Fantastic.  Magically, borrowers will pay off all their debt, save for a 20% down payment (Detroit notwithstanding), and improve their credit scores. Dr. Yun doesn't mention over 95% of mortgages are financed by the Federal government via Fannie Mae, Freddie Mac and Ginnie Mae. Americans love our 5% mortgage rates. Understatement.

I'm sure the patriotic, kind hearted realtors through their trade group will announce a reduction in their fees to help the American economy by strengthen the weak housing market.  The reduced fees would allow sellers to lower prices to make it easier for buyers to pay the downpayment  and qualify for a loan.  On a $200,000 house, a 2% lowering of fees will save the borrower $4,000 tax free! I'm sure the NAR will chip in and lower their fees from 6% to 4%. Right? Hello? Can you hear me? Can you hear me now? 

Hmm, seems they are on the AT&T network.

Understatement.

Next week I'll talk about antidisestablishmentarianism. 

A Credit Cycle built for two

For better or worse, richer or poorer...

Dear readers, a warning: I'm ready for an all out get-on-your-soap-box and scream-at-the-top-of-my-lungs rant based on the word "disintermediation" submitted by Bill L.


I am sick and tired of listening to politicians, mainstream media, liberals, conservatives, and everyone else who complains about the warfare between Main Street and Wall Street. In the immortal words of Peter Griffin, this grinds my gears. Politicians, who continue to take money from investment banks, decry how evil and corrupt Wall Street (read New York Jews and wives of certain cheating governors from the South) bankers took advantage of poor illiterate folk in middle America for their own mega million dollar bonuses.  Other politicians, who continue to take money from investment banks, decry the irresponsibility of the average American and demand investors take losses and people lose their homes if they can't afford them. 


Michael Moore and Oliver Stone are all over this topic with their agendas hanging out for all to see.


I can see it now! John Carpenter's new horror film "They came from Lower Manhattan!" or a remake of the 1951 classic "The day the banking system stood still".


Wall Street and Main Street are not North and South Koreans. They are a bickering husband and wife team; with the common goal of cheap financing for their kids (read consumers) through financial disintermediation. Without Wall Street providing cheap financing, Main Street couldn't sell cars, televisions, cameras and other goodies. Remember 0% rate credit cards? Thank Wall Street. Remember low auto loans? Thank Wall Street. Enjoy low rate mortgages with 0% down? Thank Wall Street. Enjoying the credit crisis? Thank Wall Street.


Main Street was no better. Main street was enjoying her wine and lawn parties. The kids were entertained with shiny new toys and tree houses. Even the Valium tasted better. However, Wall Street and Main Street forgot fiscal discipline (with or without a belt) and the lessons of the Great Depression.


Both Main Street and Wall Street, hurting after the great depression, slowly sold the consumer society to Americans decade after decade in the same way crack was free in the park near where I went to High School. Americans like their new Buicks and GTOs. Americans were able to send their kids to college and buy televisions. The marketing was everywhere.

In the early 2000s, financial technology allowed money from all over the world to invest in the American dream. This money allowed "Kid" consumers to use their homes and improving credit scores as a free ATM so they could spend money on Main Street.  Investors helped finance all sorts of things: cheap car loans, cheap credit cards, cheap municipal financing, cheap computers, cheap capital investments, cheap mortgages, cheap refrigerators, and cheap visits to foreign countries.  Wall Street was our hero! We had achieved the greatest financial disintermediation in history. Congress and the Federal Reserve board got into the act by getting rid of protections and keeping rates low respectively.


Main Street and consumers thrived and used this cheap credit like the fiscal crack addicts they are. They needed it and justified using it by what a swell timing they're having. Wall Street, ever the drug supplier, needed Main Street to keep the lending going.  Everything was great until the music stopped and the government sponsored methadone treatment began.  I'm sure there is a 12-step program to help.


Like a Lifetime channel movie, the hero (is there one?) has hit bottom, is in rehab and will live happily ever after ... until the next slip.


The Credit Cycle built for two couldn't handle the speed it was going down hill and ran into some not so innocent bystanders like Iceland, AIG, and many others. It will take more than Mom's kiss to make this boo-boo go away.


See you all next week.

Why is this recession different from all others...

I've been looking at the Recession 101 signs around the country and wondered "Who's political agenda supports these messages?" For instance:

Other like minded messages clearly state, the US will get out of this recession like in 1974, 1980, 1981, 1990, and etc.

Charlie Robb creates these "uplifting messages" started with money from an anonymous Florida donor. Who could it be? Rush? Tiger? Oprah? Mickey Arison? Charlie Crist? Probably not Charlie. Governor salaries aren't what they used to be. Even the saintly NY Times doesn't know who is sponsoring these messages.

Well the neurotic in me strongly disagrees. We should be concerned and not because I own some short positions. This recession is a bad one. The New York Times ran the following graph:

Scary no? I point out the 2001 recession took four years to bring jobs back to original levels.

Yes the US will come out the recession but only after a ton of pain.

Need a leg to stand on..

Like the financial markets, I'm broken. I tore the right quadriceps tendon fighting a cabal of ninjas to save a puppy from a burning building. 

Don't believe me? 

Actually I was part of the Top Hat Junk Shot experiment for British Petroleum.

Still don't believe me?

Really? Fine! I seem to have missed the public service announcement reminding dog walkers not play with their blackberry while ice is on the ground. Who knew? Inattention to obvious risks caused my injury. I've lost time at work and my budding improv career has been put on hiatus like Helen Hunt's acting. My dumb-ass moment of 2009!

My leg will completely heal after the surgery, two months walking around in a leg brace and six to eight months of physical therapy.  The healing process hurts. Breaking up scar tissue is painful. The healing process takes time. Time for tendon to fully reconnect and rebuild muscle strength and flexibility. The healing process takes money. Money slotted for other activities like new clothes, vacations and other non-essentials. The world economy also needs painful procedures, cost cutting and time.

My leg and the economy have many aspects in common. Both broke due to inattention and belief in the ability that nothing will going wrong despite being fat from excessive leverage and chocolate.

My leg and the economy differ on their short term prognosis. The world governments haven't preformed the critical but painful surgery needed to fix the problem. Sure we've thrown money at the situation but only to have Spain downgraded and riots in Greece. The public, thinking only of its next meal (Philistines!), won't take the necessary medicine. Sure the Republicans talk a good game but realistically they need to get elected like everyone else.

Now if there were an economy sized Motrin!

We return to our regularly scheduled posting next week.