I had to laugh when I saw the headline yesterday wondering why SA wasnt tracking the global recovery (funny how we are supposedly decoupled in a crisis but meant to track a recovery...???)
So why arent we tracking a recovery??? Cause there isnt one!!!
An update on green shoots from the Land of the Free.
from http://globalresearch.ca/index.php?context=va&aid=14759
"Look at the facts.
There were 1.9 million foreclosures in 2009 in the first six months, and there will be another 1.5 before the end of the year. Is that better? According to Bloomberg: "A glut of unsold homes is also pushing down prices. The 3.8 million homes for sale in June would take 9.4 months to sell at the current pace of transactions, according to the National Association of Realtors. The inventory turnover rate averaged 4.5 months in the six years from 2000 to 2005.....More than 18.7 million homes, including foreclosures, residences for sale and vacation homes, stood vacant in the U.S. during the second quarter. That compared with 18.6 million a year earlier, the U.S. Census Bureau said July 24
Total home sales fell 23.7 percent in June versus a year earlier." Bloomberg)
Massive supply, falling prices, record foreclosures, flagging demand--and according to Deutsche Bank--48 percent of all mortgages will be underwater by 2011. It's all bad.
Here's another clip from Bloomberg today 8-12-09:
"Home price declines in the U.S. ACCELERATED in the second quarter, dropping by a record 15.6 percent from a year earlier, as foreclosures weighed on values.
The median price of an existing single-family home dropped to $174,100, THE MOST IN RECORDS dating to 1979, the National Association of Realtors said today.
“I don’t think we’re at a bottom yet in home prices,” said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. “There’s also a pretty big shadow supply of houses. People are kind of waiting for the bottom but there’s a pent up supply out there.”...Home prices are tumbling even as mortgage rates remain near all-time lows. The average U.S. rate for a 30-year fixed home loan was to 5.22 percent last week, down from 5.25 percent the prior week." (Bloomberg)
The decline in housing prices is ACCELERATING, not slowing down. The historic collapse in real estate is ongoing and it is wiping out trillions in homeowner equity making it increasingly difficult for consumers to borrow on the diminishing value of their collateral. This is why foreclosures, defaults and personal bankruptcies are soaring. (According to the American Bankruptcy Institute: consumer bankruptcy filings reached 126,434 in July, a 34.3% increase year over year, and a 8.7% increase sequentially (116,365 in June). July's number is the highest monthly total since the October 2005 bankruptcy reform aka the Bankruptcy Abuse Prevention and Consumer Protection Act.)
This is why households and consumers can no longer spend as much as they had before the crisis. Credit lines are being pared back; personal savings are rising, and GDP (excluding fiscal stimulus) is shrinking. Every one of the 3.5 million foreclosures represents hundreds of thousands of dollars the banks will never recoup. NEVER. That's why the rate of bank failures will be much greater than current estimates. The banks are facing a triple-whammy; soaring foreclosures, plummeting asset prices, and a meltdown in commercial real estate. The combo has created a gigantic capital-hole which is forcing the banks to slow lending even to applicants with flawless credit. The Fed has built up excess bank reserves by $800 billion, but it hasn't made a bit of difference. They banks are still not able to lend.
The uptick in housing last month reflects seasonal changes and a shifting of pain from the low end of the market to higher priced homes; nothing more. Homes that are priced over $1 million are now sitting on the market for 20 months; a lifetime in real estate parlance. High-end neighborhoods have turned into leper colonies. Zero interest; zero traffic. Expect a crash this year.
Now take a look at this from CNBC's Diana Olick:
"The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington. According to Zillow's latest Homeowner Confidence Survey, 12 percent of homeowners said they would be "very likely" to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8 percent said "likely," while 12 percent said "somewhat likely." Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million U.S. houses, condos and co-ops, Humphries said.
According to the National Association of Realtors, the market is currently on track to sell 4.89 million homes annually.
Now take a look at this from CNBC's Diana Olick:
"The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington. According to Zillow's latest Homeowner Confidence Survey, 12 percent of homeowners said they would be "very likely" to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8 percent said "likely," while 12 percent said "somewhat likely." Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million U.S. houses, condos and co-ops, Humphries said.
According to the National Association of Realtors, the market is currently on track to sell 4.89 million homes annually.
"At this pace, it would take about four years to run through this amount of backlogged inventory," he said. "Shadow inventory has the potential to give us another leg down on home prices during the second half of the year," said Steven Wood, chief economist at Insight Economics in Danville, California. (Diana Olick, "Shadow inventory lurks over US housing recovery" CNBC)
The banks are using all types of accounting tricks to hide the real losses or the true value of downgraded assets. The only difference between a common crook and a commercial banker is a well-paid accountant. The banking system is broken and its only going to get worse as the hammer comes down on the commercial real estate market. The Fed and Treasury are already working out the details for another stealth bailout that they'll initiate without Congress's approval. It's all very "hush-hush". The plan will involve more mega-leveraging of government liabilities. Bernanke has appointed himself the de facto Czar of Hedge Fund Nation, Clunkerville USA.
I have come to the conclusion that we are experiencing deflation. House prices we all know are dropping. The Weekend Argus food basket has just become cheaper over a 12 month period (ie negative inflation), the PPI I believe is negative, plus I have done some interesting analysis on graphs which I will show soon that indicates CPI this time next year will be about minus 2%.
After about 3 years inflation will then start moving up from the zero level to peak around 13% in 2016 after which the lending rates will be substantially increased to bring it back to about 6% the year after.
I am starting to get a clearer picture as to where this is all going. I've got it right so far and I am going to put my neck on the line to see if I can call it right for the next 6 years or so. An interesting challenge.
I need to crunch the numbers a bit more and will post my conclusions about the whole future scenario once I have managed to spend a bit more time on it.
CJ huffs and puffs and predicts inflation right up to 2016 but back at the ranch the man couldnt make a wise investment decision even if it hit him square in the face.
I would like to know from him what he does with the money he saves from renting? Does he stick it in the bank and get 6-7% interest (when inflations at 12% plus)? Or does he buy shares? Maybe he buys cars and antiques?
Tell us CJ, what do you invest in since you think property is such a bum buy?
I have entered a few shorts on the market in recent years.
Have cash in the bank (earning pathetic interest I agree.)
Am working on an automated computerised trading system that trades mechanical systems I have come up with. A steep learning process but so far so good.
Have my own business - potential future expansion can be self financed.
As far as the vacancy rates and foreclosures that you quote, statistically there hasnt been a significant change either way. You are right, no recovery, no regression. But just some perspective - I feel that you are making a mountain of a moles heap.
Regarding bankruptcy filing, it might be 120'000 odd, so thats only 0.05% of the population(thats 1 in 10'000!) filing for bancrupcy in a whole month! Thats absolutely miniscule.
You ignore commercial and industrial property that contribute substantially to the US figure - also that the vacation homes are seasonally occupied and these homes make up more than 10% of all houses in the US, so the number of vacant homes due to economic reasons is millions less than you quote. Anyway, if we use your example then 19 mil out of 145 mil existing homes vacant for various reasons are really negligible. Same with foreclosures - only 1 in 50 foreclose and that in the difficult times we are in...
'Massive supply, falling prices, record foreclosures, flagging demand' is really a little colourful. Nobody is predicting property growth real of 15 - 20% per annum like the 2000-2004 trip, but this also isnt exactly Armageddon.
As far as your theory on Americans not being able to spend the way they used to, well thats because they are saving. Same happens here in SA. Stats SA showed that people are scared and cautious when it comes to spending, not poorer.
The banks are a different story. They have seen their days, sure. Thats what happens when governments interfere and create abstract value and manipulate growth etc. Banks are gone, but the gov will design a new system for the same reasons and with the same results some decades from now. That's the nature of money - its not real.
The figures on property inventory and your time line for getting them owners looks like it ignores population growth (US Census Bureau states an additional 30 mil new home seekers in the next 10 years)and age distribution.
I agree that property is just a commodity and its price determined by supply-demand, but your description seemed a bit one-sided and slightly sensationalistic.
I would love it if CJs prediction on deflation is correct! But I'm sad to see that he reckons it will be short-lived, once again, because of governments interference. Hope to see your next set of data soon, CJ. Keep crunching the numbers.
My SA portfolio: Absa: Bought 11/2/2009. Up 20.02% MTN: Bought 22/5/2008. Down 10.29% (year to date up about 24%) PSG Group Ltd: Bought 21/11/2008. Up 53.73% Satrix 40: Bought 19/6/2009. Up 8.15%
It's not all gloom and doom. There's an article in the Economist this week about the rebound in the east. Not surprising since the Chinese government actually saved money for a rainy day, spend it when it rained, and now they're recovering...
This silly blog is just a bunch of small time 3rd world wannabe economists. Don't you realise what's happening in your own country politically? You are all just so worried about making your money grow as it might in America. Zuma will soon take from you what you do not deserve.
I wasnt dissecting - I was questioning the intellectual honesty in the way that you presented your article. They contained innuendos that do not match the facts. Not saying you do this knowingly. And so the 'people' for whom you post and who might be 'interested' might also be misled.
Intellectual honesty is exactly what we need in the world I agree.
I am wondering how the MSM managed to omit a sensational piece like...
"Regulators seized Colonial Bank on Friday after reaching a deal to sell its branches, deposits and most of its assets to rival BB&T Corp. in the sixth-largest bank failure in U.S. history."
I read the article on http://online.wsj.com/article/SB125026270774732295.html. This is hectic.
I do not follow US news as often as I do Europe's, but the economists debating the US market last night on CNBC downplayed the whole thing. Not sure why.
France and Germany has come out of recession, but economists say that SA is decoupled from the developed world and reckon that those who expect SA to follow recovery are insane.
Thanks. I see there were 120 banks that failed. And I agree - this is MAD!
But just some notes (again, true to my nature). 1) FDIC lists all the banks that failed over the last 10 years, not just since last year. 2) This means that many failed due to bad management or corruption, not the credit crisis or economy. 3) The list of banks includes mostly smaller banks called 'savings institutions' with assets of between $100 and $500 million. 4) There are nearly 5000 banks in the US.
That's still 2.5% of all the banks! Huge. How many savings institutions and banks in SA - would be a train smash here if 2.5% of them shut shop.
I agree with your sentiments re. media reporting. I question their motives always; although I recognize that there is excellent reporting here and there.
You know the saying 'Seeing is Believing', when something is too good to be true or when you'll believe something only when someone actually makes it happen? Like 'yaaah right ... whatever ...' ?
Well, I am writing a book called 'Believing is Seeing', and it is exposing how humans actually see and experience things (like an enemy, threat, safety or yes, even economic recovery) as real when you can convince them of it with untruths based on a premise thats completely absurd.
So re. your comment on the media, much of what people (and my parents, and the professors, and the doctors, and the rich ...) believe as truth is peddled by the media in this way. Without being alarmist, and at risk of being branded a conspiracy theorist I say this is a real case of 'BELIEVING IS SEEING'!
Sounds like a great book..thing is you will be hard pressed not to be viewed as a conspiracy theorist digging through the believing is seeing mire.
I ask people if they think it possible that every year there could be a weekend meeting of around 130 prominent politicians and presidents, international bankers, multinational CEO's and Media owners etc and that it would go unreported for half a century...most say no!
17 comments:
I had to laugh when I saw the headline yesterday wondering why SA wasnt tracking the global recovery (funny how we are supposedly decoupled in a crisis but meant to track a recovery...???)
So why arent we tracking a recovery??? Cause there isnt one!!!
An update on green shoots from the Land of the Free.
from http://globalresearch.ca/index.php?context=va&aid=14759
"Look at the facts.
There were 1.9 million foreclosures in 2009 in the first six months, and there will be another 1.5 before the end of the year. Is that better? According to Bloomberg: "A glut of unsold homes is also pushing down prices. The 3.8 million homes for sale in June would take 9.4 months to sell at the current pace of transactions, according to the National Association of Realtors. The inventory turnover rate averaged 4.5 months in the six years from 2000 to 2005.....More than 18.7 million homes, including foreclosures, residences for sale and vacation homes, stood vacant in the U.S. during the second quarter. That compared with 18.6 million a year earlier, the U.S. Census Bureau said July 24
Total home sales fell 23.7 percent in June versus a year earlier." Bloomberg)
Massive supply, falling prices, record foreclosures, flagging demand--and according to Deutsche Bank--48 percent of all mortgages will be underwater by 2011. It's all bad.
Here's another clip from Bloomberg today 8-12-09:
"Home price declines in the U.S. ACCELERATED in the second quarter, dropping by a record 15.6 percent from a year earlier, as foreclosures weighed on values.
The median price of an existing single-family home dropped to $174,100, THE MOST IN RECORDS dating to 1979, the National Association of Realtors said today.
“I don’t think we’re at a bottom yet in home prices,” said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. “There’s also a pretty big shadow supply of houses. People are kind of waiting for the bottom but there’s a pent up supply out there.”...Home prices are tumbling even as mortgage rates remain near all-time lows. The average U.S. rate for a 30-year fixed home loan was to 5.22 percent last week, down from 5.25 percent the prior week." (Bloomberg)
The decline in housing prices is ACCELERATING, not slowing down. The historic collapse in real estate is ongoing and it is wiping out trillions in homeowner equity making it increasingly difficult for consumers to borrow on the diminishing value of their collateral. This is why foreclosures, defaults and personal bankruptcies are soaring. (According to the American Bankruptcy Institute: consumer bankruptcy filings reached 126,434 in July, a 34.3% increase year over year, and a 8.7% increase sequentially (116,365 in June). July's number is the highest monthly total since the October 2005 bankruptcy reform aka the Bankruptcy Abuse Prevention and Consumer Protection Act.)
This is why households and consumers can no longer spend as much as they had before the crisis. Credit lines are being pared back; personal savings are rising, and GDP (excluding fiscal stimulus) is shrinking. Every one of the 3.5 million foreclosures represents hundreds of thousands of dollars the banks will never recoup. NEVER. That's why the rate of bank failures will be much greater than current estimates. The banks are facing a triple-whammy; soaring foreclosures, plummeting asset prices, and a meltdown in commercial real estate. The combo has created a gigantic capital-hole which is forcing the banks to slow lending even to applicants with flawless credit. The Fed has built up excess bank reserves by $800 billion, but it hasn't made a bit of difference. They banks are still not able to lend.
The uptick in housing last month reflects seasonal changes and a shifting of pain from the low end of the market to higher priced homes; nothing more. Homes that are priced over $1 million are now sitting on the market for 20 months; a lifetime in real estate parlance. High-end neighborhoods have turned into leper colonies. Zero interest; zero traffic. Expect a crash this year.
Now take a look at this from CNBC's Diana Olick:
"The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington. According to Zillow's latest Homeowner Confidence Survey, 12 percent of homeowners said they would be "very likely" to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8 percent said "likely," while 12 percent said "somewhat likely." Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million U.S. houses, condos and co-ops, Humphries said.
According to the National Association of Realtors, the market is currently on track to sell 4.89 million homes annually.
Now take a look at this from CNBC's Diana Olick:
"The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington. According to Zillow's latest Homeowner Confidence Survey, 12 percent of homeowners said they would be "very likely" to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8 percent said "likely," while 12 percent said "somewhat likely." Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million U.S. houses, condos and co-ops, Humphries said.
According to the National Association of Realtors, the market is currently on track to sell 4.89 million homes annually.
"At this pace, it would take about four years to run through this amount of backlogged inventory," he said. "Shadow inventory has the potential to give us another leg down on home prices during the second half of the year," said Steven Wood, chief economist at Insight Economics in Danville, California. (Diana Olick, "Shadow inventory lurks over US housing recovery" CNBC)
The banks are using all types of accounting tricks to hide the real losses or the true value of downgraded assets. The only difference between a common crook and a commercial banker is a well-paid accountant. The banking system is broken and its only going to get worse as the hammer comes down on the commercial real estate market. The Fed and Treasury are already working out the details for another stealth bailout that they'll initiate without Congress's approval. It's all very "hush-hush". The plan will involve more mega-leveraging of government liabilities. Bernanke has appointed himself the de facto Czar of Hedge Fund Nation, Clunkerville USA.
I have come to the conclusion that we are experiencing deflation. House prices we all know are dropping. The Weekend Argus food basket has just become cheaper over a 12 month period (ie negative inflation), the PPI I believe is negative, plus I have done some interesting analysis on graphs which I will show soon that indicates CPI this time next year will be about minus 2%.
After about 3 years inflation will then start moving up from the zero level to peak around 13% in 2016 after which the lending rates will be substantially increased to bring it back to about 6% the year after.
I am starting to get a clearer picture as to where this is all going. I've got it right so far and I am going to put my neck on the line to see if I can call it right for the next 6 years or so. An interesting challenge.
I need to crunch the numbers a bit more and will post my conclusions about the whole future scenario once I have managed to spend a bit more time on it.
Sounds like you know your stuff CJ.
I'd be interested in reading it.
CJ huffs and puffs and predicts inflation right up to 2016 but back at the ranch the man couldnt make a wise investment decision even if it hit him square in the face.
I would like to know from him what he does with the money he saves from renting? Does he stick it in the bank and get 6-7% interest (when inflations at 12% plus)? Or does he buy shares? Maybe he buys cars and antiques?
Tell us CJ, what do you invest in since you think property is such a bum buy?
Where do I put my money ?
I have entered a few shorts on the market in recent years.
Have cash in the bank (earning pathetic interest I agree.)
Am working on an automated computerised trading system that trades mechanical systems I have come up with. A steep learning process but so far so good.
Have my own business - potential future expansion can be self financed.
ad,
As far as the vacancy rates and foreclosures that you quote, statistically there hasnt been a significant change either way. You are right, no recovery, no regression. But just some perspective - I feel that you are making a mountain of a moles heap.
Regarding bankruptcy filing, it might be 120'000 odd, so thats only 0.05% of the population(thats 1 in 10'000!) filing for bancrupcy in a whole month! Thats absolutely miniscule.
You ignore commercial and industrial property that contribute substantially to the US figure - also that the vacation homes are seasonally occupied and these homes make up more than 10% of all houses in the US, so the number of vacant homes due to economic reasons is millions less than you quote. Anyway, if we use your example then 19 mil out of 145 mil existing homes vacant for various reasons are really negligible. Same with foreclosures - only 1 in 50 foreclose and that in the difficult times we are in...
'Massive supply, falling prices, record foreclosures, flagging demand' is really a little colourful. Nobody is predicting property growth real of 15 - 20% per annum like the 2000-2004 trip, but this also isnt exactly Armageddon.
As far as your theory on Americans not being able to spend the way they used to, well thats because they are saving. Same happens here in SA. Stats SA showed that people are scared and cautious when it comes to spending, not poorer.
The banks are a different story. They have seen their days, sure. Thats what happens when governments interfere and create abstract value and manipulate growth etc. Banks are gone, but the gov will design a new system for the same reasons and with the same results some decades from now. That's the nature of money - its not real.
The figures on property inventory and your time line for getting them owners looks like it ignores population growth (US Census Bureau states an additional 30 mil new home seekers in the next 10 years)and age distribution.
I agree that property is just a commodity and its price determined by supply-demand, but your description seemed a bit one-sided and slightly sensationalistic.
I would love it if CJs prediction on deflation is correct! But I'm sad to see that he reckons it will be short-lived, once again, because of governments interference. Hope to see your next set of data soon, CJ. Keep crunching the numbers.
Shares have done pretty well so far this year.
My SA portfolio:
Absa: Bought 11/2/2009. Up 20.02%
MTN: Bought 22/5/2008. Down 10.29% (year to date up about 24%)
PSG Group Ltd: Bought 21/11/2008. Up 53.73%
Satrix 40: Bought 19/6/2009. Up 8.15%
It's not all gloom and doom. There's an article in the Economist this week about the rebound in the east. Not surprising since the Chinese government actually saved money for a rainy day, spend it when it rained, and now they're recovering...
Sell quickly anon or lose all those gains - I think the bounce is over !!!
This silly blog is just a bunch of small time 3rd world wannabe economists. Don't you realise what's happening in your own country politically? You are all just so worried about making your money grow as it might in America. Zuma will soon take from you what you do not deserve.
Pete,
I just post articles here which might be of interest to people...you dissect as you please.
ad,
I wasnt dissecting - I was questioning the intellectual honesty in the way that you presented your article. They contained innuendos that do not match the facts. Not saying you do this knowingly. And so the 'people' for whom you post and who might be 'interested' might also be misled.
Anyway - carry on.
Pete,
Intellectual honesty is exactly what we need in the world I agree.
I am wondering how the MSM managed to omit a sensational piece like...
"Regulators seized Colonial Bank on Friday after reaching a deal to sell its branches, deposits and most of its assets to rival BB&T Corp. in the sixth-largest bank failure in U.S. history."
http://online.wsj.com/article/SB125026270774732295.html
This article dated Aug 15th 2009
I read the article on http://online.wsj.com/article/SB125026270774732295.html. This is hectic.
I do not follow US news as often as I do Europe's, but the economists debating the US market last night on CNBC downplayed the whole thing. Not sure why.
France and Germany has come out of recession, but economists say that SA is decoupled from the developed world and reckon that those who expect SA to follow recovery are insane.
Pete,
Have a look at the FDIC list of banks that have failed in the US over the past year.
http://www.fdic.gov/bank/individual/failed/banklist.html
The question is...is the MainStreamMedia there to sell you the lie of a recovery when things are actually a lot worse than they seem.
or....are they just too damn busy reporting about swine flu and michael jackson?
ad,
Thanks. I see there were 120 banks that failed. And I agree - this is MAD!
But just some notes (again, true to my nature). 1) FDIC lists all the banks that failed over the last 10 years, not just since last year. 2) This means that many failed due to bad management or corruption, not the credit crisis or economy. 3) The list of banks includes mostly smaller banks called 'savings institutions' with assets of between $100 and $500 million. 4) There are nearly 5000 banks in the US.
That's still 2.5% of all the banks! Huge. How many savings institutions and banks in SA - would be a train smash here if 2.5% of them shut shop.
I agree with your sentiments re. media reporting. I question their motives always; although I recognize that there is excellent reporting here and there.
You know the saying 'Seeing is Believing', when something is too good to be true or when you'll believe something only when someone actually makes it happen? Like 'yaaah right ... whatever ...' ?
Well, I am writing a book called 'Believing is Seeing', and it is exposing how humans actually see and experience things (like an enemy, threat, safety or yes, even economic recovery) as real when you can convince them of it with untruths based on a premise thats completely absurd.
So re. your comment on the media, much of what people (and my parents, and the professors, and the doctors, and the rich ...) believe as truth is peddled by the media in this way. Without being alarmist, and at risk of being branded a conspiracy theorist I say this is a real case of 'BELIEVING IS SEEING'!
Pete,
Sounds like a great book..thing is you will be hard pressed not to be viewed as a conspiracy theorist digging through the believing is seeing mire.
I ask people if they think it possible that every year there could be a weekend meeting of around 130 prominent politicians and presidents, international bankers, multinational CEO's and Media owners etc and that it would go unreported for half a century...most say no!
http://en.wikipedia.org/wiki/Bilderberg_Group
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