Dusty

Prime Mortgages Are Also Going Sour

It is all in the Credit Suisse Mortgage Resets Charts. 'Subprime' is effectively over except for the crying and gnashing of teeth part.

The 'Alt-A' and 'Agency' and several other middle class and upper middle class kinds of adjustable real estate loans are only beginning to falter. 'Subprime' was almost a flash in the pan compared to what is just barely started in the Real Estate markets.

"Winter" this year should come early. If there is not a replay of 2008 this fall it is only because of the Federal programs that have pushed and stretched the financial environment like a chart drawn on the side of a rubber balloon. Nothing really changes, there is just a distortion in the lines. This will be a very long 'winter.'

This next phase of the Real Estate collapse will peak in February of 2012. By Christmas of 2013 most of us will be beginning to realize that it is under control but not 'over.' The most believable estimates I have seen say good stabilization by 2017 or maybe into 2018 and decent recovery so that there is a semblance of the new "Normal" by 2025.

That new "Normal" will encompass changes far beyond any ability to forecast or imagine because of the events about to happen in this Depression.

Great Depression 2? Not Even Close.

It would appear that this article completely misses the disparities between the happy numbers from the Beltway and the numbers of U3 and U6, let alone the numbers estimated by the few sources trying to determine current reality.

The current state of the economy is also not even close to where it is going. The housing-driven crash of Subprime that brought us to where we are now is only a prologue.

The housing-driven crash of Alt-A and its affiliates is barely starting to tickle awareness of its existence. By the end of the year (2009) it will be a major force. In 2010 and 2011 it will be a tornado tearing down the wealth of the nation, blowing away the wealth of the middle classes and more.

It will be late in 2012 before we can step back and even begin to survey the damage, two years to try and clear the wreckage, an average after one of these events of an additional 5 years to recover beyond that.

It may well be 2013 or 2014 before a realistic evaluation can be made of what kind of Recession or Depression this is. For now we should all consider that it will be far worse than our personal experiences can imagine and try to prepare accordingly.

---------Dusty.

Are We At a Tipping Point?

Where we are in this Depression is clearly posted on the Credit Suisse Mortgage Resets Chart. Subprime set up our economy for the big push over the cliff. All that bad stuff that happened between July 2007 and March 2009 was a prologue.

The time now between March and maybe October, maybe just late August 2009, is an intermission. It is a lot like the summer of 2008 which was also an intermission. When the real events begin again the Markets and economy will be even worse than has been seen before and will last twice as long.

The CSMR Chart shows a 'bump' for March 2009. The Market anticipates, that was the crash seen in February and early March. There is a bigger 'bump' coming in late fall, probably October through Thanksgiving. That jolt should hit in September and maybe there will be time to catch a quick breath at "The Holiday Season," maybe not. By February of 2010 the real nightmare will be underway. It is already beginning; it just goes into overdrive in early 2010.

Subprime was entry level and low-income housing. The next part is Alt-A, Agency Resets, more residential resets, and Commercial Real Estate which is not even on the chart. Add credit card defaults which are already a serious problem and getting worse. The significance of the Alt-A and Agency Resets is that they represent the mainstream of wealth in America. As the economy shrinks the upper middle class, the middle age population and business owners are going to have to come up with serious money just as the cash in the economy disappears. It is a trapdoor opening under America's wealth and the opening will rapidly get even bigger until the early winter of 2011. Then there will be a slight drop off as the hole beneath America's money just barely begins to close up again. Hitting yourself on the head with a hammer is bad. Switching to a smaller hammer is not an improvement.

It will end about September 2012. Earlier CSMR Charts showed an end in the spring of 2012. Government programs and efforts have caused a slippage of a few months. Recovery analysis that I have seen that is believable indicates two years to regain footing and then five years to climb up out of the hole, if all goes well.

Allowing for the anticipation in the Markets, "The" bottom should be Valentine's Day to Easter, 2012. No promises.

A Happy New Year's 2020 to all of you!!!

When Countries Go to Zero

The investing population is Sigma Two and Sigma Three on the high end. This group is mostly highly educated and intellectual. Sigma Plus Two and Three total about 15% of the entire population.

If you want to look at the probabilities of war and other violence, look at Sigma Plus One and Sigma Minus One, Two and Three. That group is the working class and the anti-intellectuals. It totals about 85% of the population. That 85% is busy arming itself to the teeth. Its basic values are the words and ideas of the American Constitution as that document was originally written.

I hope that you intellectuals fix the big problems before the temperature of the rest of the population reaches the boiling point. I think the pot is already too hot to touch.

------------Dusty.

Lithium Batteries: Nothing But Illusion

Noise and distraction. Electric cars will eventually join a list that started with steam-powered cars. CO2? Cannot hold a candle as a greenhouse gas to water vapor. Global warming? More noise and distraction. Very real, the big glaciers all melted- but mostly before there were enough humans to know humanity even existed. That will change and then there will be another ice age in geologic time. 4th or 5th (?) time in recent geologic history (The glaciers have come 4 times lately. Where do you want to put the markers?) Mankind's numbers are peaking. Give that a hundred or two hundred years and the ultimate demise of humans will be the topic of the times. A lot of resources, space, left-behind technology. Few people. What is happening now? Just a changing of the guard. Like Chinese history, a new dynasty is using the chaos of events to take over the principal cultures and socio-economic systems. No big thing. Just a periodic event. More noise.

Tar Sands: How Much Is Out There and Can Nuclear Help?

I am not technically knowledgeable but there are things being mentioned that may be viable. Nuclear energy plants so far have used materials which lend themselves to use in weapons and which tend to generate by-products which can be used in weapons. This is apparently a result of the needs of the cold war and the research done largely in support of military needs.

More recently a move has occured in which Thorium has become a major player in nuclear power. Apparently Thorium based nuclear does not have many of the drawbacks of uranium and plutonium during primary power generation operation and does not have nearly the long-term problems of residual waste that uranium and plutonium do.

The "reactor in a box" uses Thorium because it does behave better and is much easier to operate. Thorium is apparently much more plentiful and easier to extract.

All this is an impression gained from reading in many of these forums. It may be reasonably valid or may suffer from biases and agendas of original sources. DIIK. Things to consider, be aware of, evaluate.

Scary Numbers

On Friday night I got an E-mail from my son. He commented that on the commuter train "you can see the fear in their faces," and at work, "you can hear it (fear) in the voices on the phone."

This is from the the Market reaction to the next bump on the trail; there is a bigger one due in the fall. The real mountain crossing starts with calendar 2010 and will take more than two years (30 months). The first trek across the peaks (2007-2008) took 18 months.

If this week is the anticipation of the mortgage resets for March, the Dow Jones and the S&P 500 may hold for awhile. A slight recovery and a lot of volatility until the leaves begin to turn to their autumn hues.

Beyond that, maybe we all need to research how our parents, grandparents, nation really endured through the 1930's.

Watch Bank of America to Understand Where Economy Is Going

Subprime is over, all will be well! Uhnnn. . . Does anyone remember the spring of 2008? And then the summer of 2008? And then. . . the fall of 2008?

Now the credit card balances, soon the derivatives, then the Alt-A and other ARM mortgages will all come home.

What has occured so far, inclusive, is equivalent to the spring of 2008. Calendar 2009 will compare with the summer of 2008. Fall and winter is on the way, calendar 2010 and 2011 and some of 2012. Thirty consecutive months.

Let us see who or what survives. It will very likely be a new world by 2015.

BAC and others do not need to be nationalized. Having the US Government as a majority shareholder with major representation on the board might be enough and easier to back out of by 2020.

The Hopefully Not So Great Next Depression

War in Iraq and Afghanistan: Yes, back out now! And THEN KEEP QUIET when the extremists from there and North Korea put a Nuke into..., Well, their missiles are not going to be too accurate, they will only have 4 or 5 warheads, but the Eastern Megalopolis is a big target, so they will be trying for Manhattan and the Washington Mall. More warheads? Add Chicago, St Louis, maybe Seattle or Los Angeles. Alternatively, stay where we are and this time make sure there is a stable sensible government in place before we pull our armies out. The current mess is because everybody dropped Afghanistan like a hot potato when the Russians pulled out and left an enormous power vacuum. Each time we do that the consequences will be worse.

White Wine and Brie? Great! But before you speak about the real world try going out and spending at least a half-decade working hard enough to develop real body strength and a lot of calluses with the clear understanding that if you do wrong in any way you will starve for lack of a paycheck and probably end in a jail for just being in a hopeless situation. We need to amend the Constitution to require that anyone elected to office have at least this much history of having had to work really hard in a miserable job.

How long and how deep will this Depression be? Refer to a chart called "Credit Suisse Mortgage Resets" originally published in the fall of 2007. Phase One of this mess started in perhaps August 2007 and ran to about Christmas 2008. The calendar year 2009 is a big Phase Two Bear Trap. There will be a nasty hole on the path in the middle spring, another worse one in the middle fall, but the trend of the year looks manageable just like any other Bear Trap. Phase Three, "Alt-A" and "Agency Resets" will kick in right after New Year 2010. That will look like the worst that happened in 2008, except that it will continue with a slight increase in intensity straight through into late spring 2012. There is not enough money or enough lies on the planet to get us through all that without a lot of serious scars. While the principal causes of the nightmare will be over by summer 2012, rebuilding to the level of an evening of conversation with White Wine and Brie is very likely to take well into the twenty-teens. Maybe longer because of having to clean up the messes left here and there by those incoming warheads.

What Is the New S&P Normal?

Interesting chart. Use those values, add a factor for inflation, maybe SPX at 850 'is' at the mean? This is also about where it was in December 2002. I can only look back 10 years. It would be very interesting to look back to the 1970's or even better to 1950. Correct for inflation along the way, see where the median line adjusted for bubbles and (1987?) Technical Glitch Crashes fell?

The Burst Commodities Bubble

The Genie in my Bottle of Smoke says that the stories about fertilizers that were being told a half year or more ago were not all fiction. Food production will matter again and soon. Spring is planting and fertilizer application season.

We are in deep water and fast currents but it is partly illusion. The Credit Suisse Chart of Mortgage Resets shows the flight plan. Right now every day is worse than yesterday and the water goes down into the stygian dark depths. But the water is not as deep as it seems. The flight plan says we are almost halfway through this Fall Nightmare. The Market Crash scheduled for August 14 took until the end of September to happen; it will all be better than expected because the chaos was held off by the strength of the overall economy for a lot longer than the Fates expected. The Powers-That-Be are working hard at doing their thing. Two more weeks to November; then we will not be safe quite yet but there will be some sense of solid bottom and we will be able to begin resuming breathing.

There may or may not be a Christmas gift, but certainly a Chinese (Lunar) New Year's gift. The flight plan says by then it will be back to much like this past mid-summer with no more mountains to cross. If the big boys will just behave for awhile, it will be a rough road for a very long time but it will be over. Now and for the next week or two is probably the best time for (us) little guys to glom onto some cheap (affordable) stuff before the stock prices turn into helium balloons again.

A Quick Review of I.O.U.S.A.

I am old and gray, body and spirit. I did what I could for myself; motivated by personal observations and stories of the depressions- not just the 1930's, all the others back to the 1890's. Nothing changes. My house is paid for, I keep a little money in the bank, a little more in the market (with my fingers permanently crossed), a pantry that just seems to stay stuffed with canned goods, toiletries piled high in the bath area storage, on the dark side a gun safe filled with NATO caliber guns and ammunition (and regular practice. It's really a lot like golf or tennis?).

At work, just before I retired, the hatred that I had no credit card debt, no rent or mortgage, money in the bank, came oozing out of everyone's pores; dripping down the walls; washing up out of the floor like swamp water. America lives in Denial and exults in misery relating to money problems. Almost everyone works hard to stay in economic trouble; it has become the standard culture.

A quick look at the Standard Statistical Curve will refresh memory that about 85% of any population is the 'mainstream.' The next 14% is guiding or supervising; 1% or 2% is the leaders. I.O.U.S.A. did mention that our leadership is totally lacking. As a reader of this, you are a part of the 14%. You might be able to cause change in the greed of the actual leadership that would cause them to want America to become savers and achievers like the Chinese and most other Asians because the leadership will gain the most if our culture changes to that standard. If we do not change, then very soon, maybe much sooner than anyone can imagine, we will be unable to obtain the materials, goods, medicines, food-- that come from the rest of the world. Our money will be useless, no one will feed our debt. Then it will not be O.K. until 70% of Americans have died of starvation and disease. A very small surviving population might have enough internal resource to begin to build a new 'dream.'

Even Warren, with all his money, might find that he is not permitted to relocate or even visit outside our borders because all Americans will be pariahs; and note that that money by itself is not nutritious nor does it have any medicinal qualities.

Who’s Really Getting Bailed Out Here

In all these bailouts and buyouts (whatever the deal with Bear might be called) it would seem that some reference points or bench marks would help the general perspective. What, for example, does a new Navy carrier cost? Start with an empty drydock in a shipyard. Cost of hull, cost of nuclear power unit, cost of crew per year, how much does all those planes add, munitions prices to make it a viable system? From empty drydock to complete weapon system sailing out ready to do battle? Now cross reference this total with the money the Government is spending to keep our economy alive and to keep our friends and allies from suspending us in the air by the rope we put around our collective neck?

Financials Have Bottomed? Readers Say We're Nuts

Credit Suisse published a chart last winter that says it all. "Subprime" mortgage resets all Spring "08. High (compared to 'normal') rough intermission this Summer. Fall '08 (Sept 01 through Dec) mortgage resets go back up to the levels of the Spring; the name changes to "Alt-A" added to "Agency Resets." The Fall drop will be as much as the Spring drop. How about chuck holes in Aug and Oct similar to the ones back in Jan and March?

Market bottom best guess as a Chinese New Year gift but there will not be any real Bull Recovery for two or three years. Target Summer of 2012 for the beginning of really better times.

Game plan is to do what presents itself in short time frames and also look at dividend accumulation.

Bank of America Buyback Announcement: Who Cares?

I am a small investor. I bought BAC because my advisor said it was a good buy. $1K is a lot of money to me; I am trying to create an additional small income stream from dividends. I bought $1K of BAC a little more than a year ago and another 'unit' in October '07, both at about $52. Notice of the buyback arrived a few days ago and I checked with my broker. Special large commission (relative to my personal finances), $1.50 a share back to BAC special fee, repurchase only good for the next NYSE Business Day with BAC shares listing at about $15.00. I did, and do, feel insulted.

Before all of you start telling me how stupid I am or how everything I am doing is wrong, listen to my "strategy."

Chuck holes in the market come and go. Bear Markets come and go. "Unrealized P&L's" are mind games. All that matters is the cash of the dividends and at the moment I have a little more income than needed to pay the bills. For now the dividends get reinvested. I am trying to prepare for eventual problems.

If BAC and some others survive this mess then all is well. That is even if some dividends are reduced or even stopped for a while and then resumed. I do the best I can with the information available to me (necessarily mostly what I can find for free). FWIW, my dividend stream is currently averaging 8.20% of my initial investment. If any of the positions ends in a bankruptcy or compete shutdown kind of failure, I have a tax write-off.

My bottom line is that I feel insulted by the offer BAC made.