Happy Holiday Weak End Bears

[Drano]

MIke Burk has this interesting statistic:

 

Another extreme that caught my eye was the volume distribution in the blue chip indices. One of my programs reported 0% volume of advancing issues and 100% volume of declining issues for the components of the DJIA, S&P 100 (OEX) and SPX. 100% of the issues in the DJIA declined on Friday while 99% of the issues in the OEX and SPX declined on Friday. The 1% of advancing issues in the OEX and SPX must have accounted for less than 0.5% of all of the volume of the component issues in those indices. This phenomenon was not expressed in the small caps. In the R2K "only" 88% of the volume went to declining issues.

 

and here is his conclusion:

 

The market is nearing a short term cyclical low. Recently the market has been rallying early in the month and historically early December has been strong.

 

I expect the major indices to be higher on Friday December 4 than they were on Friday November 27.

 

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[DrStool]

That's not quite right. They do have a problem with revenues. They are collapsing.

 

Exactly. Christie is in for a rude awakening. He has no clue.

 

The big problem in spending is public employee pensions. These people need to face the music. The collapse in state revenues will eventually force the issue. You can't cut police and trash collection just to pay these outrageous pensions. Eventually taxpayers will revolt. Public employees had better be ready to bend over. The gravy train is ending.

 

Watch out too for a string of local and state government bond defaults.

[itiswhatitis]

As unpopular as it may be, I feel that I should point out that Armstrong did defraud his Japanese investors after bad bad bets with their real money... Got Ponzi?

 

And I don't know if he's guilty or not guilty, but I am not convinced he is innocent.

[capitall]

One of the links on the WSE sent me to this article

 

http://jessescrossroadscafe.blogspot.com/2...%C3%A9ricain%29

 

which contained this quote about Herbert Hoover in the 1930's, comparing it to our present government.

 

"Hoover quickly developed a reputation as uncaring. He cut unemployment figures that reached his desk, eliminating those he thought were only temporarily jobless and not seriously looking for work. In June 1930 a delegation came to see him to request a federal public works program. Hoover responded to them by saying: "Gentlemen, you have come sixty days too late. The Depression is over." He insisted that "nobody is actually starving" and that "the hoboes...are better fed than they have ever been." He claimed that the vendors selling apples on street corners had "left their jobs for the more profitable one of selling apples." Digital History Herbert Hoover and the 1930s

[Trader Joe]

That's not quite right. They do have a problem with revenues. They are collapsing.

 

Yeah, agreed. I was gonna edit my comment to mention that -- oh well, I suck

 

It's gonna be mayhem in a another year of two.

 

Maybe sooner

[MrHanky]

And another reason to rally...Wordwide bailouts now?

 

 

Dubai looks to oil-rich neighbor for possible aid

 

It's not known what promises were made inside the halls in Al Ain during the parade of visitors for an important Islamic feast day on Friday. But their new relationship is clear. Abu Dhabi has the cash and cache to be Dubai's white knight — in a Gulf version of a too-big-to-fail bailout or to help calm markets with promises to intervene if Dubai's fiscal mess deepens.

 

http://news.yahoo.com/s/ap/20091128/ap_on_..._dubai_meltdown

[dharma]

gold for november 27 ichimoku charts

dharma

[Drano]

Freudian slip.

 

On Friday, the Dow Jones industrial average suffered its biggest drop in nearly a month, closing down 154.48, or 1.5 percent, to 10,309.92, in a shorted trading day because of the Thanksgiving break

 

So how's about this bear-killin' scenario: Abu Dhabi announces bailout, no worries mates, and whammo, big reversal up for end of month greenprint.

 

http://news.yahoo.com/s/ap/20091128/ap_on_..._dubai_meltdown

 

EDIT: This is the same article that Hanky posted above, which I didn't see till I posted this.

[MrHanky]

I love how everyone thinks "black friday " is so great for business.It is by far the worst day for retail in the last 5 to 10 years.Everything is sold at cost or below,what a genius marketing plan........it can't miss .

 

 

I have had my eye on a few laptops for the last few months but I did not want to spend the $599-$750 asking price.Bought one of them yesterday online for $399,no tax,free shipping.And it's fully loaded,windows 7,brand new.......There is no way there is any profit for the idiots selling it to me.

 

 

I don't know how long any of these companies can possibly stay in business.

[DrStool]

Found this in my database.

 

Real Estate Bubble Real Time- Day Two 4/4/2005

 

The day to day experiences leading up to auctioning my home this Sunday night in the red hot Palm Beach County real estate scene in some ways are a microcosm of the times. I thought I'd share some of those experiences with you.

 

The craziness started before last week as I rushed last minute preparations for our scheduled open houses Saturday and Sunday. Fixing up and prettying up around the house, along with creating, organizing and producing information packages for the sale took every minute of the day for the last 10-12 days. All was finally ready by Saturday morning. I scheduled the open houses for Saturday and Sunday12-5 last weekend and this coming weekend, ran ads that I would sell the house to the highest bidder on Sunday April 10 in two major metropolitan dailies, and ran around all over the neighborhood putting up signs Saturday morning.

 

 

Through last week, the phone rang off the hook. I took 60 some calls by Saturday morning. I briefly explained to the callers that I would sell the house to the highest bidder. Most were confused at first, but when I explained that we should both come out ahead because I wasn't paying a huge brokerage commission, they warmed up to the idea.

 

 

 

They started coming to the door right away on Saturday in a steady stream. I'd say the majority came from the signs I had put up around the neighborhood, but a good many of those who called showed up. The house was a huge hit. Many of the visitors made themselves right at home for a good part of the afternoon, sitting at a table by the pool overlooking our little lake. I had bought and placed a slew of flowering plants to put around the gardens and the place looked great. We also did the cookies in the oven thing. Better yet we served them. A seller serving cookies to little kids is the antithesis of the intimidation that most people experience when faced with buying a home. I wanted to put everyone at ease. Hey, I'm a nice guy! I WANT all of them to win. But there can only be one high bidder. The best part is that they aren't bidding against or negotiating with me. The highest bidder will buy the house. The market will decide what it's worth.

 

 

 

Sunday was more of the same, only more so. We had a steady stream of people in the house for 5 solid hours with but a few breaks. The phone was ringing continuously all day. All kinds of people were showing up, including the usual assortment of real estate brokers, mortgage brokers, and â?‚??“investorsâ?‚? waving cash in my face if I would sell them the house right there.

 

 

 

I told one and all the same thing. You are welcome to participate in the bidding beginning Sunday night April 10, at 8:00. I told the brokers they were welcome to bid on behalf of their buyers so long as it was clear that they were representing the buyer, not me, and that the buyer's bid would be net to me. Whatever commission was to be paid was between the buyer and the broker. Mostly they scoffed or smirked. I did not tell them that I had over thirty years experience in real estate brokerage, mortgage brokerage, commercial real estate appraisal, market analysis and financial analysis. I just let them smirk and grimace, and tell me sweet little lies. It's all part of being a nice reasonable seller. So, I just smiled, and explained to them that I wanted to control the process, save the commission, thank you, and let the best bid win. They have no answer. None.

 

 

 

Those who were interested signed up on an initial bidding sheet. By the end of the day Sunday, 24 bidders had signed up for the April 10 round robin. 14 of them were already above my silent reserve. I am quite sure that most of the others would bid past that point as well, but it's pretty clear that the high bidders intend to force them out quickly. The initial bids are in a pack. One bidder who has been out looking for a long time, and has already lost out on one property he wanted, because he was outbid on a traditional listing, jumped out ahead of the pack early by $50,000. The primary advantage to being high man on the sheet is that you get the first call. By the end of the day Sunday, the pack was closing in on the leader with the gap closing to $40,000.

 

 

 

I imagine the pack will close in on the leader by next weekend, but I have a feeling that the lead guy will be the winning bidder come next Sunday when we go through the round robin. It will be interesting to see if a dark horse emerges from the pack. It will be most interesting to see how far things go in terms of price. I will give you all the details on the actual pricing from start to finish after the contract is concluded.

 

 

 

Today, I got 13 more calls on the ad. I've lost count how many that is total. Between answering the phone and greeting folks at the door Saturday and Sunday, it got a wee bit chaotic. This week I increased the suggested price in the ad by $15,000. I imagine another hundred people might still show up next weekend, and that by the time I start the round robin, there will be 50 bidders or more.

 

 

 

I plan to eliminate a few by stipulating I will not consider any bids with more than 80% financing at some point. When I'm down to the last four or five bidders, I will qualify them by the size of the down payment. If the bids are close, and the bidding goes above what other houses in the neighborhood have sold for lately, I may take the lower bid with the higher down payment. When it comes to a sale of a home in this market, from my perspective, cash is king. I don't want a problem with the appraisal.

[DrStool]

Mortgage Liquidity Steady, Real Estate Bubble Blow-Off April 7, 2005

 

Mortgage activity fell last week while rates pulled back. Both purchases and refi's were down. Residential real estate prices are in blowoff mode.

 

"

 

While mortgage liquidity is weak relative to the bubble conditions of 2003 and 2004, it is not at the crunch stage. As long as activity remains near current levels, there will be no liquidity collapse, and the markets can continue to muddle through. However, if mortgage rates resume rising, eventually they will get to the point where the number of borrowers begins to radically diminish. The total index, and the refi index are bumping along near 5 year lows. If they break down, a rapid reduction in the flow of mortgage based liquidity will put all markets under the pressure to liquidate.

 

 

 

 

 

 

Rising rates should begin to choke off loan originations, which in turn will reduce liquidity flows four to six weeks later. As of April 6, 30 year fixed rates stood at 5.91%, off 17 basis points from the prior week. Only the market can tell us where the interest rate threshold is that would start to choke off new mortgage flows.

 

 

 

According to data from the Mortgage Bankers Association, ARM rates fell 10 ticks to 4.29 as of April 6, after jumping 27 basis points the prior week. The 1 year Treasury yield on which one year ARMs are based (plus a margin) fell about 5 ticks this week to 3.39. The percentage of ARMs reached a new record high of 36.6% in the week ended March 25. That percentage dipped back to 35.2% in the most recent week. This indicator has a history of being an excellent contrary indicator. When ARM originations are at high levels, it usually means rates are going higher.

 

 

 

The real problems will begin when borrowers can no longer make the rising payments on variable rate mortgages. This year most borrowers will see their interest rates increase by the maximum of 2%. Some of them will simply stop making payments. Others will put their homes on the market. Some will return to renting. In a myriad of ways, the mortgage liquidity pool will begin to dry up.

 

 

 

 

 

 

The percentage of borrowers taking ARMs remains near record levels in spite of the fact that 1 year ARM rates have risen sharply since last March 2004. Heavy ARM demand is a good contrary indicator, signaling that short term rates are headed up. The public's record on this is perfect, taking the lowest percentage in ARM's when rates are high, and vice versa.

 

 

 

Lenders may be eating some of the increase in the first year teaser rate, and passing some or all of it along in points. This will blow up when borrowers face their first anniversary adjustment, with the rate going to market.

 

 

 

Purchase mortgage activity has recovered to the two year trend since the early January breakdown. The chart looks like classical technical action of the first stage of trend reversal, but the other shoe has yet to drop. Apparently, if fixed rates stay in the 6% range, the purchase market can continue to perk along. But it's the refi market that is most critical. If rates uptick at all from here, refi volume should drop sharply. At that point, the crunch would be on.

 

 

 

 

 

 

Meanwhile data from the Federal Housing Finance Board showed a residential real estate market apparently in a massive, probably final blowoff phase as of January. What the chart does not show is the reduction in volume that first accompanies rising rates. As rates rise, first transaction volume declines. Then if the rate rise continues, the market begins to recognize that with falling prices. Sellers are usually the last to get the news. Prices may appear to stay high, or even go higher months after the bubble actually ends, but the truth is that fewer sellers can get their price. By the time the point of recognition arrives, it is too late.

 

 

 

 

 

 

No single indicator has done a better job of warning us what's ahead than the Mortgage Liquidity Index. This is the real leading indicator of how much liquidity is in the pipeline in the mortgage bubble driven financial world.

 

 

[DrStool]

I pulled this from an old database of the Wall Street Examiner from when we were using the Nucleus content management system, which subsequently had a meltdown. Unfortunately I don't know who wrote it. Not me, I know that. But it was consistent with my views at the time.

 

Why the Real Estate Market Will Crash - April 29, 2005

 

Annual household incomes are not high enough to support home prices at their current levels.

 

"

 

Home prices in the United States, adjusted for inflation, have soared approximately 50% nationwide in the last five years, the biggest increase in history. In some areas, prices have more than doubled.

 

 

 

Since I assume incomes are not about to skyrocket anytime soon, I believe that home prices will fall. Since affordability is so extremely out of whack with historical norms, I believe that they will fall a lot.

 

 

 

Over the long term, median household income in a local area is perhaps the single most significant factor affecting prices of residential real estate, i.e. single-family houses and condominiums, in that market.

 

 

 

Don’t take my word on this point. I’m paraphrasing one of the top experts in the study of real estate cycles in the United States, Robert Campbell. He is the author of the book Timing the Real Estate Market and he also publishes The Campbell Real Estate Timing Letter. You can find more information from him at http://www.sandiegorealestatereport.com
/>

 

 

I recently had the good fortune to attend a nearly 3-hour presentation by Mr. Campbell to a crowd of over 400 people who, like me, were very impressed by what he had to say. Just for the record I have no vested interest in singing his praises. In fact I don’t even know the man -- I’ve never spoken to him personally. But the analysis he presented was a real eye-opener.

 

 

 

Also for the record, Mr. Campbell stated that his technical indicators are still pointing up at the moment. While he discussed several possible scenarios where average home prices could fall by up to 30% or more, he did not state that he expects the market to crash.

 

 

 

Mr. Campbell’s research, coupled with my own personal observations, has driven me to the conclusion that the residential real estate market in the U.S. is about to collapse.

 

 

 

First, there is the strong historical correlation between median household income and home prices. Typically, prices swing in uptrends and downtrends above and below an equilibrium level. At market lows in the past, as many as 47% of household incomes were able to afford a median priced home. At market peaks in the past as few as 17% were able to. Today many markets have exceeded this historical extreme.

 

 

 

For example, in San Diego right now the median priced home costs approximately $580,000. This is typically a single-story 3 or 4 bedroom 2-bath 1500 square foot simple house with no basement or useable attic, on a small plot, often only 100 feet by 100 feet, fronting a street with neighbors within spitting distance on three sides (right, left, and back from the next street over). Driving down the streets you can see that due to the high cost of living and cramped conditions, many people spend much of their leisure time sitting at home on lawn chairs in the shade of their garages! The few scrawny scattered decorative plants and trees provide no cover. Lawns are postage-stamp-sized sprinkler-watered patches, if that. Some are just gravel or concrete.

 

 

 

Only 11% of households can afford these less than desirable homes based on current salaries.

 

 

 

Are salaries in the area about to improve? I don’t think so. In fact many of these garage-dwellers are about to lose their jobs. As many as half of the new jobs created in Southern California in the last three years are directly or indirectly related to the housing bubble -- bankers, real estate brokers, agents, inspectors, appraisers, title companies, landscapers, window installers, termite and cockroach exterminators, painters, construction workers, mortgage loan officers and clerks, radio advertising salespeople, Ditech customer service representatives and on and on.

 

 

 

People always believe what they want to believe, but anyone whose income depends on the housing bubble is vulnerable to losing their job and losing their home.

 

 

 

Private sector jobs are being sent overseas as fast as possible.

 

 

 

Government jobs are facing cutbacks at the federal, state and local level. The United States has spent $300 billion on Iraq. The federal debt is in the trillions. The state of California itself is tens of billions in debt, floating bonds to temporarily keep paychecks flowing to workers. San Diego is on the verge of declaring Chapter 9 bankruptcy. The mayor has resigned and the deputy mayor is on trial as part of a criminal strip club scandal.

 

 

 

It’s not a good time to be expecting the job market to improve.

 

 

 

Second, interest rates are only a partial factor in home prices. Continued low rates mean relatively higher prices, but they cannot overcome the affordability issue on their own. The interest rate trend serves only to accelerate or decelerate an underlying home price trend.

 

 

 

I believe that super low interest rates the last few years have added fuel to the fire of speculation causing a bubble in real estate prices. Now, the new trend of rising interest rates will at first decelerate the home price uptrend, then accelerate the downtrend once that gets underway in earnest. This will happen even if interest rate levels remain fairly low compared to previous periods.

 

 

 

Third, interest-only Adjustable Rate Mortgages (ARM’s) have become the financing vehicle of choice for many homebuyers in the United States.

 

 

 

After the teaser periods expire, interest rates will be jacked up without mercy. The result in some cases could be a jump in the monthly payment from $1,900 to $3,100. This is more than many proud new home owners will be able to handle. They will have to move their lawn chairs from the garage to the street when they can no longer afford their mortgage.

 

 

 

Fourth, many new homebuyers are over their heads in debt. They made little or no down payments due to loosened lending standards. They have no cushion when prices fall.

 

 

 

Those lucky enough to get in on the bubble early are in better shape, right? Wrong. In far too many cases these people have succumbed to the seductive siren call of the cash-out refi industry, borrowing against their future to spend recklessly today.

 

 

 

Giant gas-hogger SUV’s crowd the streets next to illegally parked showboats and rarely used monster motor homes. Spiraling gasoline prices have caught adult toy collectors with their pants down, and many of these burdensome bad decisions are now sporting For Sale signs.

 

 

 

The smell of fear is in the air. A real-estate broker friend of mine who for the last five years has been (correctly) wildly bullish on home prices and recommended multiple purchases per person, recently confided that even he expects a 20% drop within a year.

 

 

 

Some people choose to plug their noses, close their eyes, and dream on. But reality marches inexorably closer whether it is acknowledged or denied. The law of supply and demand has not been repealed.

 

 

 

But wait a minute -- demand is high, right? Well, at what price -- $600,000 or $700,000 or $800,000? How about one million dollars for a concrete driveway and a garage with a mini-house attached? Demand falls as prices rise.

 

 

 

What about renters? Surely they are all waiting in line to buy.

 

 

 

Not at these prices. They can’t afford to. Many will just choose to move from extreme home bubble areas to cheaper regions of the country.

 

 

 

Fifth, investors or second-home buyers made nearly 30% of all home purchases last year. Historically less than 8% of home purchases fall into these categories. These houses will be the first ones dumped on the market when it becomes obvious that prices have peaked. And there are a lot of them. People who borrowed against their primary residence purchased some as investments. These people will suffer a double blow when prices decline. Not only will they watch as their remaining primary home equity is wiped out but their investment house will soon be underwater as well.

 

 

 

Frankly, these are not investments anyway. An investment pays a return -- a positive cash flow. These are speculations, plain and simple. Leveraged bets that the price will rise and the house can be unloaded to a greater fool at a profit before the carrying costs eat away too much at the speculator. And the carrying costs can be high. Negative cash flow is the order of the day.

 

 

 

Some inexperienced new “investors”, caught up in the excitement of paper profits they will never realize, have purchased several houses, sometimes as many as ten or more, in what a detached observer could fairly recognize as a frenzy of foolish greed. These people will lose everything.

 

 

 

Finally, I believe house prices will crash, not just gradually decline, because real estate is not liquid like stocks or bonds. If homes were only marginally overpriced and almost all of them were owner-occupied, the real estate market could gently correct itself.

 

 

 

But with fundamentally ridiculous overvaluations and thousands of “home flippers” all hoping to cash in at the same time, this market will soon be harshly spanked.

 

 

 

 

"

[Jorma]

And another reason to rally...Wordwide bailouts now?

 

 

Dubai looks to oil-rich neighbor for possible aid

 

It's not known what promises were made inside the halls in Al Ain during the parade of visitors for an important Islamic feast day on Friday. But their new relationship is clear. Abu Dhabi has the cash and cache to be Dubai's white knight — in a Gulf version of a too-big-to-fail bailout or to help calm markets with promises to intervene if Dubai's fiscal mess deepens.

 

http://news.yahoo.com/s/ap/20091128/ap_on_..._dubai_meltdown

 

Well somebody is going to have to liquidate something and that situation in Dubai isn't going to get any better. So it' same old same old. Some bailout, some extend and pretend. Pretend RE will reflate and save them.

 

More than a few are noting that they throw you in jail there for defaulted debts in the UAE. Not just anyone of course.

 

Russ Winter on RFWS mentioned the possibility that maybe the long knives of the law might be ready to make a move to right inside the Treasury or the Fed. That means GS too. This isn't something one should predict or count on, it is something you should be prepared for. As in look out below. Such a move would be massively popular and very dangerous. Russ theorized the administration put the old crowd back in so they could get enough rope to hang themselves. I doubt it. In the early days after the election when bloggy type liberals started looking on in horror at Geithner and such a theory like that arose. It attributed to Obama super powers of concentration and manipulation and was called 11 Dimensional Chess by skeptics. If it happens, ,doubfull, it would set the stage for news of the double dip along with Stim Pac III and QE II.

[capitall]

... Russ theorized the administration put the old crowd back in so they could get enough rope to hang themselves.

 

Talk about the audacity of hope. Well, I sure hope that that is the case too-- not because it's likely. But because if it isn't so, I can't see a way out of this economic mess-- given that the folks who destroyed the economy have been given the job of making the economic recovery happen, with very predictable results so far in the job market etc. Not a very sane choice on the face of it, from the point of view of the country as a whole. But it is the choice dictated by our system, where we vote for what president and which Congress person will take the money out of our wallets and give it to the Special Interest Groups that financed their campaigns. Obama is doing that, just as people of either party always do in his position. Surprise. Surprise.

[psyche doctor]

Black Friday:

 

This passed Friday after Tanksgiving was the worst day ever for the Naz, SnP, and Rut for a Black Friday. The only index to escape this statistic was the venerable and easily manipulated Dow, which failed to exceed its 87 loss of 1.87%. There was even more selling in globex that eve, but that market had rebounded somewhat before the cash open. Ironically, my best trade that day was going long the NQ when the selling picked up in globex. I was short going into Tanksgiving, but covered it late in the day because I wanted to be flat going into the holiday and shortened week - big mistake. I had mentioned not too long ago that the market needed a catalyst, an external event(s) from out of nowhere to spook it, to end this bear market rally. Although Dubai may not be the necessary catalyst, it showed how easily fear can spread back into a complacent market. I think we are getting close. The commercial real estate market has myriad problems and I think this could be a catalyst that could reignite the credit crisis and bring back the bear in 2010, maybe even early 2010. Also, many state and local governments continue to exhaust reserves. Yesterday as I was back home for the holiday, I looked up an old friend. His father is still fully aggressively invested in his 401K. My friend told me that he has been pleading with him to get it out of the stock market, but he refuses, stating that he is confident. There is still time for people like him, but it is running out as the sickle is being honed for another season of killing.