Housing, Jobs, Focus and Recovery - Riding the Latest Storm

by: Joseph L. Shaefer

Riders on the storm
Riders on the storm
Into this house we're born
Into this world we're thrown…
…Riders on the storm --

From the last song recorded by all 4 original members of The Doors, and Jim Morrison's final release, shortly before his death…

Whatever house we were born into, it’s probably been razed over to make room for condos, foreclosed upon, is being held for short sale by the bank holding the paper, or is two or three missed payments away from being taken away from us. Get ready to be thrown into the world. We are all now riders on the storm.

Meanwhile the bankers and brokerage firms that provided the temporarily-on-sabbatical-to-government-in-order-to-ensure-their-interests-are-put-first appointed officials guaranteed that the banks and brokers got interest-free loans from you and me which they promptly used to increase their personal bonuses in the six- and seven-figure range and to multiply their lobbying efforts to make certain that no matter when they went into the revolving door, they came out first. I guess we aren’t all riders on the storm. In the USA today, all animals are equal but some animals – the pigs – are more equal than others.

I write these words after seeing yesterday’s Existing Home Sales report. The selective retention on Wall Street and in the Executive and Legislative branches is shocking. But the rest of us need not join them in forgetting that it was housing fraud and miscreance that created the current economic crisis. Housing must recover to lead us out of it. The housing industry has always been a leading indicator for the economy and stock market. In past recessions housing was always the, or one of the, key components that led the economy down, and recovery in housing that led us back up.

It was no different this time, except perhaps for the severity. The decline in housing in 2007 led directly to the crisis of confidence and the market crash in 2008. Hype surrounding the $8000 first-time home buyer credit, later amped up with the $6500 credit for anyone buying any primary residence, begat the recovery in the markets in 2009. During this period, the number of home sales increased and prices picked up as well.

However, there has been a spectacular reversal already this year. New home sales and existing home sales have plunged every month this year. Home builders’ confidence that they are seeing some bright spots on the horizon, as measured by the Housing Market Index, declined to 15 in March. That means that 15 builders out of every hundred believe things are getting better. 85 see their indications of interest as being flat to negative.

Into this milieu comes the latest numbers: Sales of existing U.S. homes and condominiums fell in February for the third month in a row -- to the lowest level in eight months. Yet the market roared ahead 103 points yesterday. Was this such good news?

Of course not. The market hates uncertainty and even a health care plan that is certain to bankrupt future generations is better (for the market, if not for future generations) than uncertainty. So investors were focused on that piece of news rather than on housing, one of the great engines of our economy. Besides, in the words of that by-now-familiar song (feel free to join us in the chorus) “Economists surveyed had been expecting a larger decline this month.” Riiigggghhht.

And don’t you fall for that line about how bad the weather was being the reason for lousy sales. The only regions that showed even a slight increase in sales were the Midwest and Northeast -- the regions hit hardest by this winter’s storms!

There is now an 8-month supply of houses available for sale, the most since August 2009. When do people who are now renting decide to buy a house? When they have a job. If they have a steady source of income, they are willing to part with the arm and leg the banks now demand for a down payment.

(After giving Ninja -- No Income, No Job or Assets -- loans away for years only to fraudulently package them as AAA loans, with the collusion of the rating agencies and Wall Street, banks now actually want you to have some skin in the game.)

So when will housing pick up? Uh, maybe when more jobs are created? Who creates jobs? Well, normally that task falls to small businesses and entrepreneurs – exactly the people who are getting no interest in their plight from government and instead are seeing their taxes, licenses, and fees raised! So that leaves big business – loathe to hire since they’ve recently increased their earnings only by laying people off – and the government. Let’s talk about that last organization.

Whatever happened to all those “shovel-ready” projects we were promised the second we could get rid of the nasty ole previous administration? My wife and I just spent a wonderful weekend at Yosemite National Park. They had horrific ice storms this year and tens of thousands of trees were severed at their base or halfway up the trunk, leaving this dry wood scattered about as ladder fuel for the next incredibly expensive forest fire.

All over the country, the national parks, national forests, state parks, etc. have tinder-dry wood and underbrush. I’m guessing there are a million or so jobs that could be given, at least for the next six months, to a million Americans who would rather work than watch TV and collect unemployment. (There may be a million more who’d rather watch TV and collect unemployment, but, regrettably, there are enough unemployed right now to satisfy both camps.) Now that we’ve wasted a year on health care, could we get on with what the country really needs – jobs. Jobs – which will lead to the confidence to maybe buy a home for a good price. Which will lead to a real economic recovery, not some fake-out recovery that went mostly to Wall Street and lasted only as long as government could transfer money from one set of pockets to another.

What can you do to protect yourself until either government delivers on its promise of shovel-ready jobs or, more likely, American entrepreneurs and businesses succeed in spite of government's best efforts to keep us from succeeding. Many people, watching the market rise and assuming a body in motion must stay in motion, don’t want me or anyone else to rain bad karma on their parade. The market is up a wonderful 5% this quarter, so they are now putting more money in.

We, on the other hand, have under-performed the market by a full percentage point this quarter. And we're delighted -- not because we under-performed by a percent, but because we have had the discipline to do what makes sense to us. We sold most every security that did not pay a good dividend and took profits in our energy stocks and our gold and silver companies and ETFs (see previous articles, too numerous to link to). We are left with the iPath S&P 500 VIX ETN (NYSEARCA:VXX), a play on market volatility; a couple ETFs that will benefit if interest rates rise above their current 0% (OK, 0.15% on T-Bills, like there’s a difference:) TIP and TBT; closed-end bond funds like the Nuveen Senior Income fund (NYSE:NSL) and PIMCO's Floating Rate Income Fund ETF (PFL); and a few well-selected income-producing stocks like Kayne Anderson Energy (NYSE:KED), Natural Resource Partners (NYSE:NRP), Penn Virginia Resource Partners (NYSE:PVR), Enerplus Resources (NYSE:ERF), Pengrowth Energy Trust (NYSE:PGH), Atlantic Power (ATLIF.PK), and select foreign telecoms like BCE, Telecom Corp. of New Zealand (NZT), France Telecom (FTE) and Deutsche Telecom (DT).

We consider getting enough dividend income from these more conservative holdings that we only under-perform the benchmarks by 1% a prudent use of our funds. We’d rather give up 1% and sleep at night than watch 2% evaporate in one wild, down day. After all, if we’re all riders on the storm, it would be nice to have a rested and ready stallion for when the real bargains appear…

Author's Disclosure: We and / or clients for whom these investments are appropriate, are long NRP,PVR, ATLIF.PK, NZT, FTE, TBT, TIP, NSL, PFL, and VXX – all with trailing stops and while resting on a good cash cushion in preparation for the next ride of our lives.

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