Archive for November, 2009

Wall Street keeps going up while Main Street is going under water. Why?

Friday, November 13th, 2009

The Federal Reserve and our fearless leaders in Washington have set up a “Can’t Lose” scenario for big bank speculation.

Their traders are almost guaranteed winners . This is  a “no brainer” situation which leaves me  sorry that I left the tradeing desk  a lifetime ago.

The big banks can borrow money from the Fed for close to 0%, which they theoretically should be lending to consumers for mortgages, small business loans, and other economy stimulating  activities.

Instead they are useing this almost free money to speculate or trade in foreign currencies, or to buy commodities such as oil , gold futures, or anything else which is benefiting from a falling dollar.

Prices across the board are being bid up despite the imminent onset of the next phase of our recession/ depression.

Large multinational corporations are showing growing profits due to the weakened dollar . Overseas sales in foreign currencies are brought back to the U S where an additional profit is realised due to the dollars weakness.

If you pay attention to the economic reports, you will notice an exorbitant number of corporations reporting that they exceeded estimates of earnings per share (E P S ) but they are also reporting shrinking sales volume.

The increased profits despite smaller volume is due to cost cutting overhead.( Layoffs) , in addition to the falling dollar.

A win for multinational corporations, a big LOSS  for the American worker.

The Market continues to recover, passing the Dow 10000 mark and not looking back, yet the U S economy is still mired in a spreading recession.

Unemployment is increasing week by week. Last week the new filings for Unemployment insurance wasd ONLY 510000 ..Only!! Are you kidding me.

They say that is an improvemnt showing a turn in the economy.BULL FEATHERS!!! 

 They don’t care.

They have an agenda which welcomes spreading economic pain for the little guy.

In September consumer credit fell almost $ 15 billion, the 8th consecutive month of contracting consumer credit, (Over $ 170 billion total so far)

Considering that consumer debt is still exceeding historical levels by over 60% of income, or almost 2 1/2 to 1 . This indicates an additional correction can be expected, which should exceed the rapid decrease which we have just experienced.

 These figures do not include the mortgage credit markets, creating an additional credit contraction of $ 4 – 6 trillion.

This scenario, coupled with other market factors which we have discussed over the past 16 months will create a serious deflationary spiral, which should accelerate as the prime ARM’s begin to accelerate in 2010-2011.

At this rate of deflation the burgeoning recession/depression figures to have another 5-8 years, assuming that the Government leaves the economy alone,  Which it won’t.

Next- Don’t forget the falling dollar!!! A great way to further muddy the waters .

Why are stocks still going up? The lie of the century!

Friday, November 13th, 2009

Every day I watch the steady increase in stock prices and I hold my breath.

” Will today be the day the world wakes up , looks in horror at their portfolio holdings, and decides to Sell ! Sell ! SELL !!!”

Stocks are going to be hit hard and the Market is going to tank, when people realze that the recovery is a fraud.

There are several things which might set this off, but I believe that the second wave of foreclosures and defaults is getting ready to begin in early 2010.

Rising unemployment is definitely a major factor, pushing many prime mortgage holders over the edge into default.

The depletion of the severance packages given to bankers and other executives in the fall of 2008 and early 2009 is beginning to take a toll. Upper income executives expecting to quickly find new jobs, continued to maintain a semblance of their life style, and with the scarcity of jobs, they find severance pay dissapearing, and bank accounts depleted.

This financial deterioration and continued bleak employment picture is now affecting a new category of exotic mortgages, which were developed in the early part of this decade to enable young executives to take advantage of the exploding real estate market.

Beginning in 2002 and 2003 , just as the real estate market  began to approach its peak, the Alt A, and oprtion ARM’s sprang into existence as a way for these wealths executives to purchase homes that they could not really afford, by offering loans with 5-7 year interest only payments, or low interest mortgages with an adjustable balloon after the 5-7 year period.

Additional creative, no income verification loans were created , featuring low payments for that 5-7 year period, knowing that all of these prime mortgages would adjust upwards after the initial period.

The theory was dependent upon a never ending rise in real estate prices and a endless supply of money available to fund new mortgages.

These adjustable mortgages . by contract with the buyers, are set to adjust not at prime or treasury rates, but at a premium spread above these rates.This is the payment agreed to in exchange for no income verification and low payment options selected by home purchasers.

These higher peyments are confounded by the reality that many of these larger mortgages are already under water.( Loan is more than the value of the home)

The timing of many of these loans during the last phase of the Real  Estate Boom, leaves many with a very high loan to value ratio.

As these loans readjust then end up in defauld , the foreclose rate will accelerate, creating a new real estate tumble.