Quick Look at Housing... Not looking good for the high end

With all the focus on the mid to low end real estate starting to see signs of improvement, I'd like to take a quick look at the high end and see if that is coming around. Starting at the super high end:

LUXE APTS. NOW $LASH PADS: PENTHOUSE PRICE TAKES A $20M HIT

The Donald is slashing the price of his signature penthouse by 20 million to $31 million from $51 Million.

This article in the NYT (Which requires you to pay... stupid) talks about the woes of the higher end of the housing market. This is the one graph I'd like you to focus on because it is why the residential housing market isn't done with its problems.

One Sales agent summed up the situation:

"Sellers are struggling to realize that we're back to 2001-02 prices."

While subprime mortgages sparked the first round of housing problems two years ago, now "troubles are lurking further up the food chain," says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments. "You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top," he says.

To be sure, the affluent housing market is substantially smaller than the mass market. Sales of existing homes priced over $750,000 accounted for 2.3% of all sales in the first quarter of this year, compared to 4.4% of the housing market in 2007, according to the National Association of Realtors.

Still, the distress in high-end market has implications for consumer spending: the top 10% of U.S. households in terms of income accounted for 23% of consumer spending in 2007, according to government statistics. As those households watch their home equity evaporate, they are more reluctant to spend on housing upgrades or other items.

Inventory of expensive homes is rising. Overall, the inventory of unsold homes in June was enough to last 9.4 months at the current selling pace, down from 11 months a year ago, according to the NAR. But the supply of unsold homes priced above $750,000 swelled to around 17 months in June, up from a 14.5-month backlog one year ago. A recent forecast by analysts at J.P. Morgan Chase & Co. said it would take until at least 2012 for the expensive-home market to recover and that peak-to-trough declines could surpass 60%, compared to 40% for the rest of the market.

Defaults are rising, too. Among prime mortgages, jumbo mortgages are now leading delinquencies and defaults and are the fastest-rising category for defaults of all types of mortgages. The rate of 60-day delinquencies on prime-jumbo mortgages jumped to 7.4% in May, from 4.5% in November, according to First American CoreLogic. By comparison, 60-day delinquencies on prime-conforming loans reached 4.9% in May, from 3.6% in November.

A recent survey by the NAR found nearly three-quarters of real-estate agents said buyers were purchasing smaller houses due to tighter credit requirements. "We're in a 'trade-down' environment for the first time since the 1930s," says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.

This housing market went parabolic for more than half a decade... we're going to need at least that much time before things settle down and get back to normal. Stop kidding yourself into thinking a hugely illiquid asset will correct itself as quickly as the stock market.

Tax Revenues: Biggest Single Year Decline since Great Depression

I would love to have someone put this up against the increase in government spending

Picture and Article from AP

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.

Pre-Open Update 8/4/09

My suspicions about yesterdays gap up rally were confirmed when the balance of the day was spent rallying at inappropriate timed intervals. The failure to close above the afternoons highs (also the daily high) confirmed that this was not very durable buying.

Overnight I was proved correct as the market sold off pretty much the entire globex session and is now forming a symmetrical triangle at yesterdays open. (the first break of any triangle is usually false) I will caution that patterns such as these do not have as much predictability during the pre-open session.

For me to think that sellers are starting to take control from these momentum buyers we need some sort of break of yesterdays low (988.75)

Yesterdays low also holds some sort of importance to me in that my TA indicates that it requires some sort of retest. How this retest occurs and the result following the retest will provide me with some great clarity as to whether or not buyers or sellers are in control of this market.

I will update you with my thoughts once yesterdays low is tested.

Dollar Stock Market correlation = -1.0000000

"So long as the dollar weakness does not create inflation, which is a major concern around the globe for everyone who watches the exchange rate, then I think it’s a market phenomenon, which aside from those who travel the world, has no real fundamental economic consequences."

Alan Greenspan, November 18, 2007

Bail out Banks, Universal Healthcare at the expense of....

OUR STATE PARKS
Time writes a pretty sobering article about the lengths to which our state parks are being put at risk by our government's fiscal irresponsibility. California (who in my opinion is the leading indicator for our entire country) is the first to close down less popular portions of our state forests and parks

Among some hikers in the San Francisco Bay Area, the quad-straining trail to the summit of 4,344-ft. Mount St. Helena near Calistoga, Calif., is known as "the stairway to heaven" for its panoramic views of the Napa and Sonoma valleys. These views, however, soon may be off-limits to visitors — the latest victim of the Golden State's staggering budget crisis. The trail sits within Robert Louis Stevenson State Park, one of up to 100 state parks in California that might be closed by Labor Day to help close a budget gap of $26 billion. While the Department of Parks and Recreation isn't releasing a list of potential sites on the chopping block, the stairway-to-heaven park likely is at risk because it has some of the lowest attendance figures in Northern California.
.......
"The situation is still very serious," says Ruth Coleman, the state's director of parks. "We're charged with protecting these natural treasures and making them available to the public, but for the first time ever, we simply don't know how we're going to do that without closing some parks for good."

The solution is to stop spending like crazy trying to solve immensely complex problems that have no real business being run by the government and focus on the aspects that do well under the government umbrella, like our state parks.

Just makes me angry....

Pre-Open Update update

FYI

• Q's are not above Thursdays high


• Dow is leading rally by remaining above Thursdays high


• S&P's are currently testing Thursdays high

What does this mean you ask? If the Q's, which can be perceived as the speculative interest in the market (Q's are the Mini NASDAQ ie. the 100 largest NASDAQ companies)are the laggards and the DOW which is the 30 largest companies and usually the most risk averse is the leader of this rally this A.M. Then consider me suspicious.

Pre-Open Update

Well apparently my post on the inverse relationship between the USD and the S&P coming to an end was proved wrong. The European open (3am Eastern) resulted in breaking last weeks lows in the dollar and propelling the S&P up to a high of 13 points or 997 on the sept contract.

Looks like we are still in the midst of commoditizing our market. This is no market for fundamentals people, so consider yourself warned.

The success of universal healthcare: .64 cents on the Dollar

No way this will work on a national scale if it is already failing on a state level.

NYT

— A hospital that serves thousands of indigent Massachusetts residents sued the state on Wednesday, charging that its costly universal health care law is forcing the hospital to cover too much of the expense of caring for the poor.
The suit says the hospital will lose more than $100 million next year.

“We filed this suit more in sorrow than in anger,” said Elaine Ullian, the hospital’s chief executive. “We believe in health care reform to the bottom of our toes, but it was never, ever supposed to be financed on the backs of the poor, and that’s what has happened in Massachusetts.”

The central charge in the suit is that the state has siphoned money away from Boston Medical to help pay the considerable cost of insuring all but a small percentage of residents.

According to the suit, Massachusetts is now reimbursing Boston Medical only 64 cents for every dollar it spends treating the poor. About 10 percent of the hospital’s patients are uninsured — down from about 20 percent before the law’s passage in 2006. But many more are on Medicaid or Commonwealth Care, the state-subsidized insurance program for low-income residents…

SPENDSPENDSPENDSPEND oh yea...

BTW America you know how I promised that I would never raise taxes for 95% of all Americans? Well I lied. I went crazy with all my bailout and handouts and now that I am starting to sober up, I realize I need to pay for this somehow. Apparently foreigners aren't going to continue to buy unlimited amounts of US treasuries, so you know how I promised you I wouldn't tax you.... yea.... sorry about that....

WASHINGTON (AP) -- President Barack Obama's treasury secretary said Sunday he cannot rule out higher taxes to help tame an exploding budget deficit, and his chief economic adviser would not dismiss raising them on middle-class Americans as part of a health care overhaul.
.....
"There is a lot that can happen over time," Summers said, adding that the administration believes "it is never a good idea to absolutely rule things out, no matter what."

And on George Stephanolpolous:

To get the economy back on track, will President Barack Obama have to break his pledge not to raise taxes on 95 percent of Americans? In a “This Week” exclusive, Treasury Secretary Tim Geithner told me, "We’re going to have to do what’s necessary.”

Geithner was clear that he believes a key component of economic recovery is deficit reduction. When I gave him several opportunities to rule out a middle class tax hike, he wouldn’t do it.

We really need to stand up and write to our congressmen/women and let them know that this frivolous spending must stop.

Your Tax Dollars Contributing to Pollution on a massive scale

So let me do some simple math here 1 Billion dollars divided by $4,500 = 222,000 cars taking part in the cash for clunkers program. which means 222,000 cars spewed this kind of pollution out into the atmosphere without the EPA batting an eye....



So what do we do.... Lets let approve another $2 billion so 444,000 cars do some more damage!

More BEA BS

The Bureau of Economic Analysis released its quarterly GDP report on Friday and most news outlets decided to call this release positive.

NYT

The U.S. economy came out of its tailspin in the second quarter and may be poised to resume growing, even as new signs of economic strain showed up in Europe.

U.S. gross domestic product -- a broad measure of the value of goods and services produced -- contracted at a 1% annual rate last quarter, its slowest pace in a year. That was a marked improvement from the first-quarter contraction of 6.4% and the fourth quarter's 5.4% pullback.
....
The U.S. recession appears to be near an end, government figures suggest, even as revisions to prior years' data show that the downturn has been even more severe than previously thought.

Gross domestic product fell at a seasonally adjusted 1.0% annual rate April through June, the U.S. Commerce Department said Friday in the first estimate of second-quarter GDP. That was better than the 1.5% decline Wall Street economists had expected.

See here's the problem. all these news agencies decided to only read the first page of the report and forgot about the other 50 pages. To summarize lets announce headline numbers and then casually revise previous quarters' better than expected headline numbers down to absurdly bad numbers. Instead of shrinking at an annual clip of 5.5%, as originally reported, America's GDP shrunk at a rate of... 6.4%. Justin Lahart (who wrote the NYT article I am linking) curiously has some trouble with math because when I add 0.9% to 1.0% I get a result over 1.5%. On top of that, if we include 2008 with the first quarter of 2009, the BEA revised total GDP "growth" downward by 4.9%

No one seems to care about prior revisions. They only want to hear made up numbers that are most assuredly going to be revised down in the upcoming quarters.

Its a wonder why these print publications are losing to lowly blogs such as mine... they can't even tell the whole story. Why you ask? Because doom and gloom doesn't sell ad space.

Cas For Clunkers hits some more roadbumps.... and questions

From the NYT

With the Senate passing another 2 Billion towards the cash for clunkers program, the questions that are arising are how many more cars will this next 2 billion cover? Also there are far reaching repercussions from totaling the cars and seizing the engines.

Nick Clites, who is in charge of used cars for the dealership, was prepping a 1988 BMW 535IS, with 214,000 miles on the odometer, for its death. He drained the oil, then donned a silky blue protective suit, goggles and gloves and poured a sodium silicate solution into the engine. He revved the car, and within a few seconds, the solution hardened into a glass-like substance, the engine seized up and the car was dead.

So here is one question: With the program now on shaky ground, even with a new infusion of money, what consumer and what dealer will risk rendering an engine irretrievably unusable?
Well, as it turns out, a lot of them are doing so, because unless the dealers can prove to the government that they have killed the engines and scrapped the cars, the government will not reimburse them for the $3,500 or $4,500 discount that they have given the customer on a new, more efficient vehicle.

what happens to these scrapped cars? Usually their is a huge aftermarket for their engines, which can be rebuilt and used in cars for people who cannot afford new ones.

“Oh my God, what a mess today,” Sally Ann Maggio, who co-owns Hackensack Auto Wreckers, also in New Jersey, said on Friday. We visited her car-crushing business on Thursday. She didn’t think much of the program to begin with.

Ms. Maggio said she generally makes her profit by reselling the engines, the most valuable parts of the cars she takes, but that’s not posible with the cars coming to her because of the cash for clunkers program, because they have been rendered unusable. That cuts down the salvage value of the cars — and the incentive for salvage yards and wreckers to take them — to almost nothing, considering the time and energy they must spend in going to the dealer, towing back the dead cars, removing the engines, crushing the bodies and shipping them to a metal scrap shredder and recycler.

And, of course, the process reduces the supply of used engines for people who can’t afford to buy a new car and come to the salvage yard looking to fix up old ones.

In any case, Ms. Maggio said, dealers are “hitting the panic button” today.

“We have been overwhelmed with phone calls from the dealerships,” she said. They have already killed the engines, and want her to pick up the heaps.

Yet another example of our government thinking about immediate appeasement of our situation at the expense of the longer term problems these "solutions" create