BTW - if we were reporting REAL inflation and unemployment numbers the Misery index would be far higher than the 20.8 then. Shadow statistics http://www.shadowstats.com/... has inflation at 12% (instead of 4) and unemployment at 13% (instead of 5)- making for a misery index of 25 or so. I wonder what the talking heads on business shows would be saying if we were reporting THOSE numbers?
Forget the people who almost pleadingly say that the sub-prime mess is 'bottoming out' - NOBODY has a clue how much crap is out there packaged up in pretty paper with bows as indecipherable derivatives.... I was on Wall Street in the 80's when CMO's forst appeared... nobody understood them THEN and they've gone through more morphing nd changes since making them COMLETELY beyond understanding... (hint - if you're being foreclosed, challenge them to PROVE they own your mortgage... it'll take 6 MONTHS or more for them to do so - THAT's how bad the paperwork trails are).
And just WAIT until CDO's - Collateralized DEBT Obligations start blowing up. Your bank - or Visa or whoever - no longer hold your credit card debt. They slice dice and package it - just like they did with mortgates. Yep.... bankruptcy laws may have made it impossible to walk away from your MasterCard debt at 24% interest - but does anyone think you can get blood from a stone - or money from a person unemployed for 2 years who's already lost their house and has NO assets?
EDIT/ADD - Forgot to mention that credit card debt INCREASED over 7% in March. Does THAT make sense? ......only if you realize that people are COMPLETELY tapped out and are now putting gasoline and food on credit cards because they have no other choice..... THAT statistic should be scaring the hell out of people.
If the Government REALLY wanted to help they'd forget the TAXPAYER FUNDED rebates and force Banks to refinance credit card debt at .... oh let';s be generous to the banks and say 10% - that's still HALF what many are paying.... and drop all the egregious fees and REBATE a year's worth of interest overcharges. THAT would get the economy going again....
And refinance all those overpriced mortgates to let people STAY in their houses - even if they need 40 years. Better to have people staying and paying SOMETHING than having people homeless and houses looted for their scrap metal......
AND .... to get a whole generation of college grads out of theri parent's basements, cut student loan rates back to 5%. Maybe then all those 20-30 year olds can AFFORD a life, get out and find their own place (helping the condo and apartment market)....... jobs would be nice too... more than Burger King or the Gap...... end EDIT/ADD
From one expert - quoted by Bloomberg News:
Myron Scholes, chairman of Platinum Grove Asset Management LP and 1997 winner of the Nobel Prize in economics, said the worst of the crisis in credit markets may not be over.
``From my perspective, I think that we don't know if the storm has passed or if we are still in the eye of the storm,'' Scholes said in an interview with Bloomberg Radio yesterday. ``Are there other shoes to drop and new events or new shocks that will come to the fore?''
Scholes's warning reflects financial markets that Federal Reserve Chairman Ben S. Bernanke this week said remain ``far from normal.'' Financial institutions have been reluctant to lend to each other, driving up bank borrowing costs, since a flight from risk in August sparked by defaults on subprime mortgages.
``In my view, this is probably as bad or worse than the 1989-1990 crisis and may even rival the worst crisis we've seen since the end of the Second World War,'' . .........
Hmm.... so maybe things AREN'T looking up........
A talking head on MSNBC was almost PLEADING with all those people that actually have savings.... the smart ones that parked their money in CD's. He was saying - with some justification - that yields of 2.5 and 3% aren't going to keep up with inflation. Remember the 70's and early 80's wehn you got 9, 10 and 11% on your savings - banks were paying that because people KNEW that inflation was at 14%. You still lost ground but not as badly........ anyway the business expert was saying how people needed to get over their FEAR......
LOL..... we've been getting the bejessu scared out of us for the past 7 years as a matter of policy but we're only supposed to be afraid of TERRORISTS..... we're not supposed to be scared sh*tless that our 401K's have tanked in value while our salaries buy less and less food and we had to sell our first born to fill our gas tank.....
Who WOULDN'T be scared? If you have ANY sense of history and listened to your grandparents you KNOW how bad things were in the 1930's..... yet somehow I don't see too many investment bankers willing to work for the CCC to put food on the table.......
Banks and brokerages are DESPERATE for your money..... I'm getting personal phone calls when my CD's come due pleading for renewal.... my broker is dying to get his hands on the IRA I inherited from my mother (though leaving it where it is costs me less than having it under his control). Advice - take close interest in any savings you have. Educate yourself. I'm starting to finally understand how the really wealthy do it. If you have ANY brains and invest wisely you CAN make money on invetments and pay a LOT less in taxes. But most people are naive and get screwed with high fees and management costs... been there - learned that lesson. Most investment advisors are NOT your friend..... brokers are there to sell you things and make money for THEIR employer first. If you make some money, well, that's nice.
Funny how my broker's no longer trying to sell me on managed funds. I dumped most of those after the summer's meltdown - at a loss. The stocks I picked - bearish contrarian plays - are making enough money to offset the losses in earning power on munis - and the losses I had listening to his advice....... HE is asking for MY advice lately because I'm making money.... lol.....
For some reason people keep trying to get me to refinance my mortgate and home equity line. WHY WOULD I DO THAT? I've got 7 years left on a 15 (after refinancing down frm an 8+% 30 year). We pay AHEAD which should mean an even earlier payoff. Probably not a smart thing - after all I'll be paying off with inflated dollars - but I really really don't like having debt. Funny how credit cards don't like it when you pay off monthly.
But financial institutions are DESPERATE to get more capital in - even after all that cheap Fed money. But THAT's over with if you believe recent news... the Fed's done cutting rates. Now, reality is that in EVERY OTHER COUNTRY that's been a mess like ours, the World Bank and others forced countries to RAISE rates. In other words, we NEVER should have let the Fed cut rates. We're killing the value of the dollar - the increase in M3 is close to 18% annually. We're printing a NEW dollar bill for every 5 already out there. THAT kind of behavior leads to Wemiar Republic (Zimbabwe-like for the historically impaired) inflation. There's a reason China and the oil states are cutting back on buying US debt. The return stinks and we're inflating the dollar so your principal is worth even less.
Meanwhile the price of gold is headed back up. We have yet to hit the inflation-adjusted peak from our favorite decade - I'll bet there's plenty of upside. The IMF dumped 400 TONS on the market to 'raise capital' a few weeks back.... huh? Yep makes sense to me.... I'm going to go buy Monopoly money with my REAL money because I can get more of it. I suspect THAT move was to boost the US $ - well, the market bought it all up and is now looking for more. I wonder how much George and Dick bought? Look for signs of digging in Bush's new Paraguay abode. He's not going to leave it here because the US government can confiscate your gold in an 'emergency'. Don't know why they care. It's not 1933. The US can simply continue to print money like no tomorrow. It's not like they are required by law to have gold and silver reserves.
The Brazilian Real is at a 9 year high - and Mexico is freezing rates because of inflation fears.
The earthquake in China is revealing that their insurance industry is well, a bit behind... lots of damage needing to be rebuilt - with nobody to foot the bill. But then even WITH insurance, most in New Orleans and the Gulf Coast are STILL waiting for rebuilding.
Meanwhile the mess in the financial markets has wide reaching effects.....
Iceland Offered Emergency Loan to Shore Up Krona (Update2)
By Robin Wigglesworth
May 16 (Bloomberg) -- Iceland was offered an emergency loan by the central banks of Denmark, Sweden and Norway to shore up the krona and avert an economic collapse.
The currency rallied 3.7 percent against the euro after the banks agreed to provide 1.5 billion euros ($2.3 billion), which would double the Atlantic island's foreign currency reserves.
The krona has dropped as much as 26 percent against the euro this year on concern Iceland's commercial banks have taken on too much foreign debt, prompting speculation the central bank may have to step in.
The offer of aid from neighbors ``will help stabilize the financial markets, but not the basic imbalances of the Icelandic economy,'' said Lars Christensen, senior emerging markets strategist at Danske Bank A/S in Copenhagen.
Support for the currency may enable policy makers to halt a series of interest rate increases that Sedlabanki forecasts will lead the economy to contract 2.5 percent next year and 1.5 percent in 2010. Inflation accelerated to 11.8 percent in April, the fastest pace in 18 years, even after the key rate increased to a record 15.5 percent.
Left on its own, Iceland isn't in bad shape.... despite a 'difficult situation' as far as location and resources, it's actually a pretty livable place. They only got into trouble when people started playing games with FOREIGN debt...... just like the City of Narvik in Norway. They're bankrupt after investing City funds in 'safe' debt..... something to do with US mortgages.
I know that here in the burbs things are no longer nice and rosy. The last round of layoffs in banking and financials hit home (Keep in mind that Advertising and Publishing never recovered from THOSE cuts a while back - Systems and programming have been desolate for a while with outsourcing - so much for 'hi-tech' retraining). Fianance and banking was the ONLY sector driving thigs lately. Those few wise enough to prepare are OK - having stashed nuts away in expectation of the coming storm - but most aren't. Without an endless Home Equity line (lots are actually getting CANCELLED by panicking banks) some people are going to be hurting and hurting fast.
I remember the guy that owned the local heating oil company talking about the last downturn - when houses had only run up 30% or so...... astounding how many recent purchases were sold then and how many people lived with underwater mortgages for years..... I expect that with the cuts in finance you won't be seeing many million dollar sales in the next year... and with all those Manhattan co-ops being sold as pied a terres to Europeans, they aren't going to be trading up to the burbs in 5 years either...... I think we can kiss off the remnants of the suburban housing market. I feel sorry for those that bought in the past couple years. A recently divorced friend has had their house on the market for almost a year.... she can't afford to keep the house but is finding it hard to sell. My s-i-l in Vegas is stuck there, no way to sell for any price out there. Builders are giving away new houses to get them off inventory.
The everpresent work crews renovating houses seem to be far fewer lately - noticeably absent actually.... only 'finish-up work on long running jobs. A friend needing a new roof (REALLY needing a new roof) got a quote only a couple hundred more than they were quoted a couple years back (material costs have gone up and the extent of work needed has increased). From their pov, the cost of the work has gone down. The local landscaper (from ElSalvador) notes that people have cut back and a local music teacher is a bit perturbed because people are stiffing her in payment for their kids' lessons. Meanwhile gas is now at $4.19 a gallon and Diesel close to $5..... can't wait for next winter's heating season..... a friend has started riding his prized Harley to work - to save on gas.... my wife's secretary is dying from her commuting costs.... those 'affordable' houses up in Putnam aren't so affordable with $4 gas. I was talking with a guy in a local store who said his 'stupid' brother in law was sleeping on his sister's couch because he can't afford his commute in from the Poconos.(I agree with the 'stupid' part - WHO ON EARTH ever thought commuting to NYC from the POCONOS in Pennsylvania was sane and affordable?)
With local taxes going through the roof, our school system may be in for a rude shock with the latest bond issue. Some people can't afford the taxes they already have. Older homewoners have been moving out because of taxes, selling to Manhattanites with kids - making the crowding even worse. Can't say I plan on staying - hell I couldn't afford to buy here until well into my 30's - AFTER we had kids. We liked it here BECAUSE there was little turnover - people were here for most of their lives and their kids came back here to buy...... it's no longer the same..... you're getting yuppies from Manhattan who don't want to pay for private school - oblivious to everything because they work 80 hours a week so they can afford to live here.
The belt tightening is underway..... If you're into roller coaster rides, hold on.... it's far from over. WHOEVER gets in as President in 2009 is inheriting a sh*tstorm of unheralded proportions - one unseen in the lives of most people (save a few of our oldest).
