Why House Prices Will Now Drop Another 20%

Posted by D.D.Grant at 5:38 AM

Writing in Business Insider, Gary Shilling of A. Gary Shilling Co., lays out the basis of his opinion that house prices have another 20% to fall. Referring to what he sees as the contrast between 'Great Expectations' and 'Reality', Shilling notes how in the spring of 2010 the belief became widespread that not only was the housing crisis at an end but that solid rebound was underway. In this period many investors were rushing into foreclosure sales and bidding up prices in CA. This was encouraged by the tax credit of up to $8,000 for new home-buyers that egged buyers on and many thought that housing activity nationwide was being kick-started. The Home Affordable Modification Program intended to help 3 million to 4 million homeowners with underwater mortgages contributed to the rosy outlook being claimed by paying lenders to reduce monthly payments to manageable size and then paying homeowners to continue to make those payments.

Professionals will want to study all 27 of the charts in Gary Shilling's article. To illustrate some of what he is saying I have included a couple here.


Chart 4 shows very starkly the false dawn of earlier this year when sales of existing homes skyrocketed under the influence of the factors mentioned above. It also shows how this development collapsed as dramatically as it rose. The upshot was that existing home sales fell to a new low. All the measures to support a revival of the market had only
“borrowed” sales from the future.

This is taking place against an employment picture that resists all attempts at revival as Chart 7 shows.


This also means NAR’s Housing Affordability Index, reliable for the earlier post-World War II period, is no longer relevant today, especially with its additional threats of layoffs, wage and benefit cuts and the proliferation of part-time jobs. Homeownership hardly makes sense to someone who doesn’t know the size of his next paycheck assuming there is one?

The situation is made even worse by the almost a quarter of all homeowners with under-water mortgages. With the principal owed exceeding the value of their houses, many can’t sell their existing homes, obviously essential for an active resale market, even if they wanted to.

It is difficult to see how the situation overall is going change for the better anytime soon and those charged with the job of improvement are not to be envied.

Related articles

• The Fallacy of a Pain-Free Path to a Healthy Housing Market (dallasfed.org)
• Bad news on foreclosure, housing price front demands action from administration (dailykos.com)
• Really? Few upbeat outlooks for '11 housing (lansner.ocregister.com)
• Gary Shilling: Don't Expect an End to Housing Woes (bloggingstocks.com)

Survive Foreclosure

Posted by D.D.Grant at 4:47 AM

This article is aimed at those whose situation is such that they are eligible for those programs that are available. Obviously if we consider all those with mortgages they can be divided into those who have no problems with meeting their obligations right now, those who are in difficulty and can use any available help, and those whose circumstances are unfortunately beyond the help of the programs. (Even in the last category it is still a good idea to check with the resources given here).

So for those in the category that can still use help this is one time when it is sensible to follow the advice of the government and get help now! The first thing to do is to get Foreclosure Avoidance Counselling. HUD approved counseling agencies are available to provide you with the information and assistance you need to avoid foreclosure. This link has a handy tool to let you find an agency in your state and area. Counseling is provided free of charge by non-profits working with the government. There is no need to pay for these services.

It is very important to act fast to avoid foreclosure when you suspect you are at the slightest risk. Don't allow things to drift until you end up being beyond help. Always contact your lender immediately you suspect you will be in difficulty. Don't assume your problems will automatically correct themselves. This handy guide from HUD gives the information and directions you need including the information you need to have ready when you call your lender.

There may also be programs that are run by your state and you can find out if this is the case for your state here. Just click on your state and you will be taken to the information.

You can also access much of the above information through HOPENOW including a self assessment tool.

AMBAC 2010's Bear Stearns?

Posted by D.D.Grant at 2:44 AM

Media preoccupation with other matters, either the WikiLeaks drama or the Holiday Season, has meant that the bankruptcy of AMBAC, the second largest bond insurer before it suffered huge losses on risky mortgages, has gone relatively unnoticed.

The Global European Anticipation Bulletin issue No. 50 is suggesting that this oversight on behalf of the media isn't a complete accident, noting the hyperactivity of e.g., the Financial Times which has been publishing two or three articles a day on the so-called Euro Crisis, a crisis which the Bulletin dismisses. It points out that no investor has lost money on the recent Greek and Irish crises whereas tens of thousands have lost considerable sums in the recent US muni crash.

According to the GEAB article, the US Muni crash is only a minor harbinger of things to come and it foresees a major crisis in sovereign debt in the coming year at which time the Ambac failure will be likened to the way in which Bear Stearns' failure preceded the earlier crisis by a year.

Anyone with any interest, which is to say everyone, will want to read the article and pay attention to the items referenced in the footnotes.

GEAB No. 20 Breaking phase ahead for the global financial system in 2008

Posted by D.D.Grant at 3:07 AM

GEAB No. 20 is now issued. This is one of the few publications that has achieved a remarkable predictive record on the subprime crisis and the global credit crisis. Although it is a subscription item (I have no financial connection or other connection) there is an informative abstract provided on the site. The following is excerpted from this abstract:

"The rapid aggravation of the global systemic crisis as its phase of impact unfolds (1) has brought our researchers to estimate that the contemporary global financial system will reach a breaking phase in the course of 2008.

Crisis follow-up indicators now show that we should no longer only fear the failure of some large financial institution (and of many small ones) in the US first and the in the rest of the world (cf. GEAB N°19), but that the global financial system itself is structurally hit.

The network of global central banks' repeated incapacity to control the « credit crunch » when the two historical pillars of the contemporary global financial system (a US economy in recession and a US dollar in decay), reflects the growing surge of centrifugal forces within this very system.

Indeed it is no more a matter of competence or of magnitude of the corrective actions implemented by central bankers. These times are over since summer 2007 and, according to LEAP/E2020, we are now witnessing an increasing divergence in
economic interests among the different components of the global financial
system.

The expected failure of the Fed's most recent attempt to coordinate a joint action of the main central banks in order to feed the banks in US dollars (2), is particularly revealing. This action meant to restore confidence in the financial system by two means:

- reinstating the now moribund inter-banking market, by proving the existence of a « joint force de frappe (strike force) » of global central banks.

- enabling large financial institutions in distress to anonymously restock in US dollars, in exchange of their assets being accepted as discount window collateral (i.e.worth their value some months ago, when they were still worth something)(3).

Of course the first goal is predominant, as reinstating of interbanking market is the only means to bailout banks in distress in a sustainable manner. However, it is already clear that the target has failed to be reached (4). The LIBOR (London Interbank Offered Rate), a key indicator of the health of the interbank market, has not moved an inch from its highest levels ever reached (5). “Psychologically” speaking, the global stocks decline recorded after the action of the central banks was announced, proves this if any message went through, it is that the situation for large US banks is even worse than announced in the past months (6).

According to LEAP/E2020 research team, it is already a fact that after it lost control over interest rates (cf. GEAB N°16), the US Federal Reserve has now lost two more of the attributes that characterized the post-1945 global financial system: its credibility as a proactive player capable of influencing heavy market trends(8), and its capacity to organize and drive global central banks altogether along its own rhythm and goals. In doing so, it has just lost the ability to steer by itself the entire global financial system, an ability it has gained after 1945.

Even though today, financial markets are mostly receptive to the loss of the first attribute (9), our researchers estimate that it is the loss of the second attribute (and the impact on the system's leadership) which will result in the global financial system's break sometime in the course of next year, probably by summer, when the effects of the ongoing US recession will start being fully felt and when Asians and Europeans will decisively be compelled to impose their own priorities to the “Fed-pilot”.

In this 20th issue of the GlobalEurope Anticipation Bulletin (December 2007 issue), our team describes in detail the characteristics of the growing divergences between the four main central banks (US Federal Reserve, European Central Bank, Bank of England, Swiss national Bank)."

Major Bank Crisis?

Posted by D.D.Grant at 1:27 AM

The Global European Anticipation Bulletin No.19 of which an abstract is available, outlines some possible scenarios in the world of banking stemming from the unfolding subprime crisis and its siblings the credit crisis etc. "[A]t least one large US financial institution (bank, insurance, investment fund) will file for bankruptcy before February 2008, sparking off bankruptcies among a series of other financial institutions and banks in Europe (in the UK especially), in Asia and in various emerging countries."

GEAB N°19 - Contents
( Published on November 16,
2007)

International banks get dragged into financial crisis’ 'black
hole': Four triggering factors of a major financial bankruptcy

LEAP/E2020 now estimates that at least one large US financial
institution (bank, insurance, investment fund) will file for bankruptcy before
February 2008, sparking off bankruptcies among a series of other financial
institutions and banks in Europe (in the UK especially), in Asia and in various
emerging countries... (page 2)

Factor No.1 - Drastic drop in revenues
for banks operating in the US

The CDOs altogether are now dragged into a
general confidence crisis, and they represent a large part of bank assets since,
in the past few years, large banks from lenders became investors and
speculators, like hedge funds… (page 4)

Factor No.2 - Slumping value of
assets owned by these banks resulting from new US banking regulation (FASB
regulation 157)

On November 15, 2007, a regulatory factor, the FASB 157
standard (designed to enhance transparency of financial statements of financial
institutions operating in the US) speeds up the pace of financial organisations'
collapses (American and others)… (page 7)

Factor No.3 – Increasing
weakness of bond insurers

Bond insurers are financial markets' «
supports ». Completely unknown to the public today, their names could soon
become as common as the word 'subprime' has… (page 9)

Factor No.4 –
Economic recession in the US

As a complement to our anticipations of the
impact of the US economic recession for banks operating in the US, we find it
useful to analyse here how much US official statistics have become totally
surrealistic… (page 12)

Obviously there are plenty of signs of activity at the Fed and in Big-Corporate America to stave off this possibility and to minimize it. Thus the protracted series of adjustments to the books of various players and the paced revelations of write-downs stemming from SIV and conduit activities. The question that remains is whether the interventions available to governments are robust enough to succeed in a system that appears to have become a mystery to its designers like a modern Frankenstein. The international financial engineers are saying in effect that the way in which the new global reality is structured provides a field of buffers to dissipate the effects of any particular shock. However, it's as well to remember that this is what was claimed for large-scale hedging an eye-wink ago. Place your bets.

Rocky Road Ahead for US Taxpayer

Posted by D.D.Grant at 10:53 PM

An object lesson for the US taxpayer is being played out in the subprime crisis fallout in the UK. The naive among us can still be found, on blogs and elsewhere, insisting that the measures being put in place by Governments and Central Banks will not cost the ordinary citizen. Developments in Britain are now showing the utter fallacy of this position.

It appears that Northern Rock, the British bank which suffered a run earlier this year in fallout from the funny money routine may saddle the UK government with "a bill in excess of £25bn" and calls are being made for the bank to be taken into public ownership. Since the latter action is unthinkable in the US, the alternative is easy enough to figure out.

"But now plans to sell the bank are running into a wall of opposition from politicians who are outraged that a sale could involve an open-ended commitment to provide government support to a buyer. 'Why should taxpayers' money be used to help Richard Branson, or whoever eventually acquires Northern Rock?' asked Vince Cable, shadow chancellor for the Liberal Democrats [a UK political Party]."

An insight into prospects for the easing up of credit pipelines worldwide can be gleaned from the comments of a City [of London] analyst: "No one will touch Northern Rock unless the Treasury continues to stand behind it; on its own, the Rock is not viable." Substitute the names of certain major US institutions and there you have it.

The full article is available at the Guardian website.

Global Systemic Crisis - GEAB Update

Posted by D.D.Grant at 2:26 AM

The Global European Anticipation Bulletin No.18, Seven sequences of the impact phase of the global systemic crisis (2007-2009), is now available. This publication offers possibly the finest analysis of the big picture of the economic crisis to be found. Although a subscription item, there's an intriguing extract available without charge.

Here is the full scope of the current issue:

This public announcement provides the full description of the first sequence in addition to the complete list of sequences.

• Sequence 1 - US debts infect the financial planet: A century after the « Russian loans”, meet the “American debts”!
• Sequence 2 - Stock market collapse, in Asia and the US mainly: between - 60% and -30% in two years according to the regions
• Sequence 3 - Bursting of global housing bubbles: UK, Spain, France and emerging countries
• Sequence 4 - Monetary storm: Volatility at the highest / USD at the lowest
• Sequence 5 - Global economy in stagflation: Recessflation in the US, soft growth in Europe, recession
• Sequence 6 - « Very Great Depression » in the US, social unrest and the militaries' growing influence on public affairs
• Sequence 7 - Major acceleration in world's strategic rebuilding, attacks on Iran, Israel on the brink, Mid-eastern chaos, energy crisis

The free extract is titled: Sequence 1 – US debts infect the financial planet: A century after the 'Russian loans', meet the 'American debts' (2nd quarter 2007 – 3rd quarter 2008).

As noted in a previous post, the position of GEAB is that the US is headed for a 'Very Great Depression' as an outmoded international economic order meets condition it was never designed for. Since the prognoses have shown an unusual accuracy to date it is well worth putting this site in your Bookmarks.