Note: Tune into Bloomberg TV at 1:12 pm EST to see me
discuss the ins and outs of real estate Hopium on the “Fast Forward With
Lisa Murphy” segment.
Struggle is not only Good it is necessary for a healthy, functional market! The Market Wants to Fly on its own!
Let’s start this post off with a popular parable.
Once an academic and self proclaimed
(albeit not necessarily mistaken) intellectual was playing outdoors and
found a most exquisite caterpillar whose colors and patterns gave it a
most fantastic presence. He carefully picked it up and took it home to
show his colleagues and peers. Together, they studied this caterpillar
and wrote papers and hyper-intellectual dissertations on it. They even
went so far as to name it. They called it, “Keynesian!” and vowed to
each other that they would take great care of it.
The intellectual spent the considerable
resources available to him as the chairman of the most powerful hedge
fund cum central bank in the world to cater to, and study this Creature
called Keynesian. Every day he watched the caterpillar and brought it
new plants to eat. One day the caterpillar climbed up the stick and
started acting strangely. The academic worriedly called international
colleagues and together they came to the understanding that the
caterpillar was creating a cocoon. The academic explained to his
colleagues how the caterpillar was going to go through a metamorphosis
and to become a butterfly.
The cadre of central banking colleagues
were thrilled to hear about the changes this caterpillar known as
Keynesian would go through. They watched every day, waiting for the
butterfly to emerge. One day it happened, a small hole appeared in the
cocoon and the butterfly started to struggle to come out [for those who
are not following, thing bubble bust at this point]. At first the
academic was excited, but soon he became quite concerned. “Keynesian”
was struggling so very hard to get out! It looked like it couldn’t break
free for its chrysalis! It looked desperate! It looked like it was
making no progress whatsoever! As a matter of fact, to many academics,
it looked as if it may actually fail.
The academic was so concerned he decided
to help. He ran to his lab and pulled out (with assistant from his
colleagues in the Treasury) an alphabet soup tools (see 10 Ways to say No, the Banks Have Not Paid Back Their Bailout and Buried
Deep Within The Files That The Federal Reserve Released On Thier MBS
Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!)
to cut the cocoon to make the hole bigger and the butterfly quickly
emerged! As a matter of fact, it emerged 100% quicker than any other
butterfly that has been observed. As the butterfly came out the
academic was shocked at the result. “Keynesian” had a swollen body and
small, shriveled, non-functional wings. The academic continued to watch
the butterfly, theorizing and expecting that, at any moment, the wings
would dry out, enlarge and expand to support the swollen body. He just
knew that in time the body would shrink and the butterfly’s wings would
expand.
Well, guess what? Neither hypothetical
actually occurred! “Keynesian” the hobbled butterfly, spent the rest of
its life crawling around with a swollen body and shriveled wings. It
never was able to fly on its own…
As the academic tried to figure out what
had gone wrong, Reggie Middleton suggested he consult with the owners
of a healthy adroit butterfly named “Austrian”. That butterfly’s
caretakers, with the assistance of Reggie, explained that the butterfly
was SUPPOSED to struggle. In fact, the butterfly’s
struggle to push its way through the tiny opening of the cocoon pushes
the fluid out of its body and into its wings. Without the struggle, the
butterfly was doomed to never, ever fly. The academic’s good intentions
severely, and most likely permanently, damaged the butterfly called
“Keynesian”.
Remember, in the Circle of Economic Life,
struggling is an important part of any growth experience. In fact, it is
the struggle that causes you to develop your ability to fly.
As excerpted from Do
Black Swans Really Matter? Not As Much as the Circle of Life, The
Circle Purposely Disrupted By Multiple Central Banks Worldwide!!!,
Bernanke et. al. have snipped the chrysalis of the US markets and
economy one too many times. He has interrupted the circle of life…
I have always been of the contention that
the 2008 market crash was cut short by the global machinations of a
cadre of central bankers intent on somehow rewriting the rules of
economics, investment physics and global finance. They became the
buyers of last resort, then consequently the buyers of only resort
while at the same time flooding the world with liquidity and
guarantees. These central bankers and the countries they allegedly
strive to serve took on the debt and nigh worthless assets of the
private sector who threw prudence through the window during the “Peak”
phase of the circle of economic life, and engaged in rampant
speculation. Click to enlarge to print quality…
The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference 
The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. All four corners of the globe are currently “hobbling along on one leg”, under the pretense of a “global recovery”.
A snapshot of the housing picture as of now, before the release of the latest Case Shiller numbers
The latest shadow inventory calculations are now available to subscribers online.
Here are a few observations that we have made regarding the March data.
The last quarter of 2010 and portions of the first quarter of 2011 have
seen a significant drop in foreclosure activity due to allegations and
blatant discoveries of fraudulent practices in the mortgage industry.
Reference:
- A Glimpse of the Wikileaks’ Smoking Gun Emails Show Bank of America Falsifying Loan Information Monday, March 14th, 2011
- Re: B of A – With Banks Being Forced To Admit The Inevitable Truth, How Long Will It Be Before Fundamentals Rule The Day Again? Friday, January 21st, 2011
- JP
Morgan Purposely Downplayed Litigation Risk That Spiked 5,000% Last
Year & Is Still Severely Under Reserved By Over $4 Billion!!!
Shareholder Lawyers Should Be Scrambling Now Wednesday, March 2nd, 2011
This near cessation of foreclosure activity has materially dropped
the shadow inventory numbers, but has done so in a way that is quite
misleading. Those foreclosures either will happen and become REOs or
distressed property sales that are currently averaging a discount of
~25% to conventional retail sales (thus further pressuring sales
prices), or will result in the properties being put directly on the
market at steep discount (again, further pressuring sale prices).
Basically, the foreclosure backlog is simply accumulating in the
background and will print a very sharp spike upwards one way or another
once the foreclosure and fraud issues of the banks are sorted out – even
if they are sorted out to the detriment of the banks. Despite this
reprieve in foreclosures, the ratio of shadow inventory to home sales is
not decreasing. This is a double negative, for shadow inventory is
decreasing (albeit for very artificial and temporary reasons). The
reason for the lack of movement in this very key figure is that housing
sales are actually declining both on a seasonally adjusted and
non-adjusted basis – and if these figures were to be adjusted for “true”
inflation, would look much worse. This leaves the ratio of delinquent
and foreclosure activity to sales relatively static. One can surmise
what happens when the foreclosure backlog that was caused by the bank’s
myriad legal issues clear up.
The most valuable chart in the study just released to subscribers, Shadow Inventory Update
— March 2011 shows how quickly one can expect the shadow inventory to
be consumed by the sale of homes. To make a long story short, we still
have quite a ways to go before we reach the pre-bubble levels, and that
is without taking into consideration the foreclosure moratoriums. Keep
in mind that these numbers do not include the pent up shadow inventory
that is being hidden by the foreclosure crisis. That additional
inventory on top of a slowing housing sales metric can easily tack one
to 4 years onto the inventory numbers.
As you can see, the credit (delinquency measures) metrics are
actually moderating slightly over the last few quarters, but have
increased over the last two. This is a negative sign considering all of
the efforts that have been made by the government and the banks to
reduce that figure. The foreclosure inventory, although lulled somewhat,
is still slightly on the rise. This lull is synthetic and temporary, a
by-product of congressional pressure and legal issues pressing the banks
to undergo voluntary and involuntary moratoriums on foreclosure
activity. The consequent movement to be expected as these moratoriums
are lifted, the banks work out their legal issues, and the properties
move one way or the other will cause a very dramatic spike in the shadow
inventory numbers. This spike will occur on top of slowing housing
sales, dramatically reduced housing prices metrics and potentially
deteriorating credit metrics (if the most recent trend continues). If
that is not enough good news for you, the Goldilocks scenario of the
perfect interest rate environment for real estate needs to (and probably
will in the near to medium term) come to an end. See The True Cause Of The 2008 Market Crash Looks Like It’s About To Rear Its Ugly Head Again, With A Vengeance
Friday, March 11th, 2011. Our calculations available ot subscribers
show a very bleak outlook for housing. It is not as if there is no
precedence for such. Take a look at the Japanese situation, and this is
not taking into consideration the recent issues of the earthquake,
tsunami and radiation poisoning and nuclear meltdown. Few things are as
detrimental to property values as radiation poisoning!
A lesson to be learned: Beware for when a true black swan event occurs…
Further reading:
- Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate Friday, February 25th, 2011
- In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse Wednesday, February 23rd, 2011
- Further Proof Of The Worsening Of The Real Estate Depression Thursday, February 24th, 2011
- You’ve Been Had! You’ve Been Took! Hoodwinked! Bamboozled! Led Astray! Run Amok! This Is What They Do! Monday, February 28th, 2011
- FASB Appears to Have Bent Over For The Final Time & Accuracy In Financial Reporting Dies An Ignominious Death!!! Wednesday, February 9th, 2011
- As
JP Morgan & Other Banks Legal Costs Spike, Many Should Ask If
It Was Not Obvious Years Ago That This Industry May Become The
“New” Tobacco Companies Thursday, January 6th, 2011 - The Latest Case Shiller Index – Housing Continues Freefall In Aggressive Search For Equilibrium Monday, February 7th, 2011
- As
Clearly Forecasted On BoomBustBlog, Housing Prices Commence Their
Downward Price Movement In Search Of Equilibrium Scraping
Depression Levels Tuesday, December 28th, 2010
