The FED is the Mortgage Market

Here are the numbers according to Chris Martinson:

Federal Reserve Buys More Than 100% of Mortgages Issued in 2009
So far in 2009 (through August), a total of 3.2 million existing homes were sold for an average price of $217,000, while 263,000 new homes were sold for an average price of $264,000.

Taken together, and assuming that we live in a world where 10% is the average down payment, we get this table:
That is, a total of ~$686 billion in new mortgages were issued in 2009 (through August).

Now let's look at how many Mortgage Backed Securities (MBS) and agency debt obligations were accumulated by the Federal Reserve on its balance sheet over the same period of 2009:It turns out that in 2009 (again, through August), the Federal Reserve has bought $624 billion of MBS and a further $98 billion of Agency debt, for a total of $722 billion in money injection into the housing market through Fannie Mae, Freddie Mac, and the FHLB.

In other words, the Federal Reserve alone bought $722 billion of mortgages and agency debt when only $686 billion in new mortgages were issued. So, through August, the Fed bought more than 100% of the entire supply of new (purchase) mortgages in 2009.

That's not a free housing market; that's a market bought, owned, and sustained by the Federal Reserve's willingness to print up three quarters of a trillion dollars out of thin air.

Head over and check out the rest of the post.

An Interesting Fact about this Overbought Market (part 2)

The NASDAQ has had 13 straight positive days. Today will/might be the 14th.

An Interesting Fact about this Overbought Market

The S&P 500 is now trading 20% higher than its 200-day average. Although there have been rare occasions this deviation has been higher, note that this is typically an "extreme".

• During the 2002/2007 bull market, we never hit +20%.
• 1986 and 1987 saw 19%/20%, but no higher.
• 1982 saw the deviation briefly above 20%.
• 1975 saw a marginal move above 20%.
• 1943 saw the 20% deviation again prove good resistance.
• 1935 and 1936 though saw the deviation above 20%.
• 1933 saw the S&P 500 59% rich to its 200-day.
• 1929 saw the 20% deviation again prove good resistance.
• 94% S&P 500 stocks also now above their 200-day average.

Thank You Simon Hobbs

The man succinctly summarizes our current situation and absolutely owns the Fast Money talking heads.

For those of you who want to know who Simon Hobbs is click here

The Recession is Ending, so lets extend Unemplyment benefits by 13 weeks!

So all of the governments talking heads keep spewing this baloney that the recession is over yet they turn around and do something like this. From AP

WASHINGTON (AP) - Despite predictions the Great Recession is running out of steam, the House is taking up emergency legislation this week to help the millions of Americans who see no immediate end to their economic miseries.

A bill offered by Rep. Jim McDermott, D-Wash., and expected to pass easily would provide 13 weeks of extended unemployment benefits for more than 300,000 jobless people who live in states with unemployment rates of at least 8.5 percent and who are scheduled to run out of benefits by the end of September.

The 13-week extension would supplement the 26 weeks of benefits most states offer and the federally funded extensions of up to 53 weeks that Congress approved in legislation last year and in the stimulus bill enacted last February.

People from North Carolina to California "have been calling my office to tell me they still cannot find work a year or more after becoming unemployed, and they need some additional help to keep their heads above water," McDermott said.

They claim the recession is easing but need to extend unemployment benefits another 13 weeks? What this does is understates the unemployment number as those people covered under unemployment insurance aren't factored into the jobless numbers or jobless rates that the government announces.

Doesn't exactly sound like the recession is ending.

James Mill, Of the National Debt, in: Commerce defended (1808).

Were the exhortations to consumption, of Mr. Spence and others, addressed only to individuals, we might listen to them with a great deal of indifference; as we might trust with abundant confidence that the disposition in mankind to save and to better their condition would easily prevail over any speculative opinion, and be even little affected by its practical influence. When the same advice, however, is offered to government, the case is widely and awfully changed. Here the disposition is not to save but to expend. The tendency in national affairs to improve, by the disposition in individuals to save and to better their condition, here finds its chief counteraction.

[…] One of the most powerful restraints upon the prodigal inclinations of governments, is the condemnation with which expence, at least beyond the received ideas of propriety, is sure to be viewed by the people. But should this restraint be taken off, should the disposition of government to spend become heated by an opinion that it is right to spend, and should this be still farther inflamed by the assurance that it will by the people also be deemed right in their government to expend, no bounds would then be set to the consumption of the annual produce. Such a delusion could not certainly last long: but even its partial operation, and that but for a short time, might be productive of the most baneful consequences.

[…] It might be not useless to those who are the most averse to hear of the fact, barely to allow themselves for one moment to suppose it real, and then to ask themselves, whether it ought to be disguised or to be made known; whether the fatal cause is most likely to be removed by concealment or by exposure.

You do realize its a Recession Mrs. Obama

From the Washington Post:

Let's say you're preparing dinner and you realize with dismay that you don't have any certified organic Tuscan kale. What to do?

Here's how Michelle Obama handled this very predicament Thursday afternoon:

The Secret Service and the D.C. police brought in three dozen vehicles and shut down H Street, Vermont Avenue, two lanes of I Street and an entrance to the McPherson Square Metro station. They swept the area, in front of the Department of Veterans Affairs, with bomb-sniffing dogs and installed magnetometers in the middle of the street, put up barricades to keep pedestrians out, and took positions with binoculars atop trucks. Though the produce stand was only a block or so from the White House, the first lady hopped into her armored limousine and pulled into the market amid the wail of sirens.

Then, and only then, could Obama purchase her leafy greens. "Now it's time to buy some food," she told several hundred people who came to watch. "Let's shop!"

So i can't even begin to put a price on what this certified organic Tuscan kale cost us taxpayers. Why not just have some intern go out and get you some? It is this kind of showboating and wanton spending that drives me nuts especially during these hard economic times. Now I realize that Bush was a huge abuser of his privileges as president and spent more time at his ranch and in Kennebunkport than he did in the White House, but people are more willing to overlook these things when times are good. You are supposed to be setting an example for the American people. Exercise some restraint as everyone else in America is doing so.

Picture of the Day

Random Thoughts

Over the past month or so I've been overhearing a lot of people bragging about their investing prowess during this 6 month relentless rally. Granted this has been mostly in NYC so its not a fair sampling, but I am Curious as to whether or not anyone has been hearing the same from their neck of the woods. This is usually a great contrarian indicator.

The other thing that I checked on upon returning from Europe to find that gold has breached 1000/oz was the number of Google searches on Gold and other gold related terms. There has not been any sort of increase in these searches and while I'm thinking gold needs a lot of technical work to be done at this current 1000 level before powering higher, it tempers a tiny amount of my worry about this break being weak hands.

Finally Dylan Ratigan From MSNBC tells it like it is:

The American people have been taken hostage to a broken system...As hostages -- was there any sum of money we wouldn't have given AIG? Why did we pay Goldman Sachs and all the other banks 100 cents on the dollar for their contracts with AIG, using taxpayer money, while we forced GM and others to take massive payment cuts? Why hasn't any of the bonus money paid to the CEOs that built this financial nuclear bomb been clawed back?

And more than anything else -- why does the US Congress refuse to outlaw the most anti-competitive structure known to our economy, one summed up as TOO BIG TOO FAIL?
As we approach the anniversary of the bailouts for our banks and insurers -- and watch the multi-trillion taxpayer-funded programs at the Federal Reserve continue to support banks and subsidize their multibillion bonus pools, we must ask if our politicians represent the interests of America? Or those who would rob America of its money and its future?

The Devil's Dictionary - Financial Edition

Hilarious Piece in the WSJ with financial definitiions relevant during the past couple years.

AAA, n., obsolete. A rhetorical device used to dupe buyers into purchasing securities backed by shacks dressed as houses, and to secure the highest possible spot in telephone directories. Common usage: AAA Septic Drainage and Mortgage Backed Security Services.

BAILOUT, n. First known use: Noah. Novel regressive taxation scheme whereby vast sums of capital are transferred from those citizens who didn’t participate in the illusory Bacchanalia of the housing bubble to those who did and weren’t clever enough to get out in time.

BANK, GOOD, n., archaic. Sober, conservative, risk-averse institutions designed to midwife customers’ capital and enable prudent lending to deserving businesses and consumers. See Capra, F., the Bailey Building & Loan Association.

BANK, BAD, n. 1. Everyone else. 2. Especially Goldman Sachs.

CREDIT-DEFAULT SWAP, n. loose translation from the original Latin “ubi mel ibi apes,” or “where there’s honey there are bees.” 1. A complex financial instrument vital to the functioning of a modern economy in the way it spreads risk among consenting parties. (Greenspan, A., pre-Sept. 2008.) 2. A complex financial instrument that nearly destroyed modern capitalism (Greenspan, A., post-Sept. 2008).

CREDIT LINE, n. A set amount of borrowed money available only to those who don’t need it.

CREDIT-RATING FIRMS, n. Firms that do scant rating of people with scant credit.

DEFICIT, n. For the party in power, at worst a minor irritant and at best a precondition for economic growth. For the minority, the gravest threat to the stability of the Republic.

TOO BIG TO FAIL, idiom. Banks, insurance companies, car companies, presidential approval ratings, Fed chairmen seeking second terms, other people who think they should be Fed chairman, the reputations of people who’d be responsible for letting things fail. Antonym: TOO BORING TO SAVE.

I'm BAAACK

Ok I am back and have a ton of things to catch up on. I had almost no internet access for the past 2 weeks or so and there is an amazingly large amount of news and market action for me to digest. So bear with me and I hope to get back up to speed by the end of this week.

Taking the time to remove yourself from the markets often allows for some great introspection on your general feelings towards news items and market events. We all carry some bias one way or another and it is generally reflected in our writings. As anyone who reads this blog knows, I am very bearish on the prospects of our economy and country and think that we have a long road ahead and desperately need massive changes towards more laissex-faire economic structure and our inability to do so will prolong this rough period further (think 10 years of growth lost in Japan due to their leveraging of their future). I see things moving in a similar way.

What has changed with my trip abroad is that I have come to realize that this current period is still in the stages of denial and the old adage "you can't fight the tape" is holding true. No matter how bad everything is getting. The market seems keen to key on Bernanke saying "The worst is over" and many other massaged data points showing that things are less worse than previously. This is a time period where I can say with conviction that I don't get it. This is starting to happen with more regular frequency due to the massive involvement of our government in the financial markets as well as the general business environment.

Just yesterday I saw a television commercial with the head of Chrysler attempting to coax people into his cars with a 90 day return policy. I could only shake my head in disgust. This company is hemorrhaging taxpayers money like crazy and what minuscule profit margins they already have are probably going to get eroded away by this absurd return policy. This is the perfect example of what government intervention does it gives poorly run companies the security to take on non-profitable actions to generate revenue at the expense of its competitors. AIG is doing it by offering rates that are according to actuaries not profitable and therefore artificially suppressing prices and driving their competitors slowly our of business. GM is doing the same thing. Government intervention ruins the free market economy.

The even sadder aspect of all of this is that we are no longer long term forward looking people. The average holding period of a stock on the NYSE is now under 9 months. In the 1980's and even the 90's it was measured in years (5+ in the 80s and 2+ in the 90's). We are a market of speculators and not investors. Don't try and invest in a speculators market. People think that a couple of less worse data points indicates that we have solved the massive glut of excess leverage and easy lending that has occurred for the past 15 years. People real solutions will not come until years from now. This will not last.

Whether or not the market will reflect this is a completely different story. This is no longer a market of Buy and hold. I cannot advise anyone to be fully invested without some hedge on the risk inherent in a system not run by the market but by our government. Until that changes I will never advocate holding stocks for the long run.

There is no easy solution to an investment strategy these days. I can only think to tell people that they are better off accepting that their money isn't going to grow at all over the next 3-5 years and sit and wait with the powder dry for the time to come when rationality returns to the market. That time period will be fancifully ugly and only then will I chose to truly Invest.

I Leave You with the Following Charts

Short Term



Longer Term

Off to Europe.....

Not going to be around until the 14th. As per usual, the market decides to be entertaining when I go on vacation. Best of luck to everyone.

Gotta Love Lobbying: Third-party safety tests not required for Mattel

Yahoo News:

WASHINGTON – Toy-makers, clothing manufacturers and other companies selling products for young children are submitting samples to independent laboratories for safety tests. But the nation's largest toy maker, Mattel, isn't being required to do the same.

The Consumer Product Safety Commission recently, and quietly, granted Mattel's request to use its own labs for testing that is required under a law Congress passed last summer in the wake of a rash of recalls of toys contaminated by lead. Six of those toys were produced by Mattel Inc., and its subsidiary Fisher-Price.

The new law sets strict limits for lead, lead paint and chemicals known as phthalates. It mandates third-party testing for companies, big and small, making products geared for children 12 and under.

"It's really ironic that the company that was a principal source of the problem" is now getting favorable treatment from the government, said Michael Green, executive director of the Center for Environmental Health in Oakland, Calif.

It sure does make me happy to know that the government is looking out for our kids and not our corporations....

The agency approved seven Mattel labs as "firewalled third party laboratories" — the first to get that designation under the new law, which permits the "firewall" exception. Mattel pushed hard for the firewalled labs provision when Congress was considering the legislation. The company spent more than $1 million in 2008 on lobbying, according to federal records.

Mattel's "firewalled" labs are in Mexico, China, Malaysia, Indonesia and California.

CPSC issued no press release about the 3-0 vote in Mattel's favor, and information on the vote was not posted on the commission's Web site section pertaining to the CPSIA law.

Picture of the Day

Market Update: I hate to say I told you so....

So apparently the market has decided to start listening to me once again and we got some seriously ugly action this morning. Overnight the S&P decided to head up and test the 1025 area, only to be rejected creating a new trend low at 1011ish. Usually overnight action sort of helps with patterns but real actionable stuff needs to happen during the cash session (normal market hours). So lo and behold, the market goes on to test that ever important 1025 area only to reject it VIOLENTLY. Remember folks i was telling you that the only way to get out of this range is to do so violently. Here it is. THe other scary thing is that my 1007 level is actually a very significant level and by not bouncing there or even hesitating, it shows the strength of the sellers today. We'll probably get an obligatory bounce at 1000 but 1007 should hold as resistance.

The Coming Deposit Insurance Bailout

From the WSJ

Americans are about to re-learn that bank deposit insurance isn't free, even as Washington is doing its best to delay the coming bailout. The banking system and the federal fisc would both be better off in the long run if the political class owned up to the reality.

We're referring to the federal deposit insurance fund, which has been shrinking faster than reservoirs in the California drought. The Federal Deposit Insurance Corp. reported late last week that the fund that insures some $4.5 trillion in U.S. bank deposits fell to $10.4 billion at the end of June, as the list of failing banks continues to grow. The fund was $45.2 billion a year ago, when regulators told us all was well and there was no need to take precautions to shore up the fund.

The FDIC has since had to buttress the fund with a $5.6 billion special levy on top of the regular fees that banks already pay for the federal guarantee. This has further drained bank capital, even as regulators say the banking system desperately needs more capital. Everyone now assumes the FDIC will hit banks with yet another special insurance fee in anticipation of even more bank losses. The feds would rather execute this bizarre dodge of weakening the same banks they claim must get stronger rather than admit that they'll have to tap the taxpayers who are the ultimate deposit insurers.

I still can't believe that the mainstream media is so willing to overlook all these huge issues that still exist in our system and carry on with their "Recession is over" ranting.