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US Economic Outlook Grim and Getting Worse – Unless You Listen to the Media


Regardless of what the main stream media is reporting on the state of the US economy, if you ask the average person you’ll most likely hear something completely different – like our situation is abysmal. I say this out of my own personal opinion formed by talking to men and women I know, some of them single, some married, some with kids and some without a care in the world. I also point to recent conversations I’ve had with regional banks here in the state of Hawaii where I was making inquiries regarding REO management practices and loss mitigation efforts here in the Hawaiian Islands. I spoke mostly with mid-level managers responsible for the day-to-day oversight of bank-owned and pre-foreclosure properties, in addition to mortgage servicing managers.

While I am not in a position to divulge any direct sources I can offer my anecdotal assessment of the responses I heard. And my assessment is this – here in Hawaii, a state that typically lags behind the contiguous US with respect to real estate cycles, the foreclosure and default rate is spiraling out of control. The banks are not reporting nor proceeding with foreclosures due to their inability to absorb the losses. They are understaffed, flying blind, and completely incapable of dealing with the situation at hand. This, in my opinion, is primarily due to a gross misconception on their part that they can forestall the liquidation process of non-performing assets while they wait for the real estate market to rebound.

Even more shocking than the market related issues was the revelation that no bank that I spoke to had any formal loan modification procedure or program in place for their portfolio loans. My guess is that these regional banks, ill-equipped to deal with the onslaught of non-performing assets coming down the garbage chute, will be forced to liquidate their rotten apples to “Vulture Funds” already preying on banks who’ve been slow to react to this crisis. In addition, all signs point to another wave of foreclosures on the way. Stupidly, regional banks here in Hawaii (and nationwide) are waiting for a recovery that will never come and like a killer whale going nuts on its trainer at Sea World this next foreclosure wave will cause these already bleeding banks to finally capitulate and be gobbled up by the likes of JP Morgan and Bank of America.

These recent conversations I had prompted me to pull some data and take a look at where we are – a confirmation mostly but sobering nonetheless.

Here are some updates:

From MarketWatch

By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) — After several months of improvement in housing, manufacturing and sales, the U.S. economic recovery appeared to sputter in October, leading investors and analysts to re-evaluate whether their forecasts were too rosy.

The economic data to be released in the holiday-shortened week ahead could provide a few more “what-were-we-thinking?” moments. All in all, though, the data shouldn’t kill hopes for modest growth while we wait for the private sector to start hiring again.

Last week, a “reality check” rippled through the markets following weak data on housing starts and industrial production, said Nigel Gault and Brian Bethune, U.S. economists for IHS Global Insight. They expect further “mixed and somewhat ambiguous” reports in the coming week, but, on whole, they say “the evidence is still positive and continues to point to a nascent recovery” that will need “strong policy support” for some time.

When a central bank cuts interest rates to zero they are both encouraging and enticing investors to take risks that they might not otherwise take in a normal policy environment. Hence, we see these dramatic moves in the dollar, gold, other commodities, and the US markets in general. The goal of zero interest rates is to drive asset appreciation again. But when the underlying debt service which support these assets is insufficient the intended re-inflation will be mixed until it ultimately fails.

As of this morning the S&P 500 is within 13 points of its market top based on a Fibonacci retracement of 50% from the March 2009 lows. The next highest Fibonacci number of 61.8% would put a market top at approximately 1,220. The S&P is running out of ZIRP gas and is poised for a correction.

Option insurance play SPY 11-18-09

Below are two separate takes on the US Unemployment picture. First is the official BLS report. Second is the Real Unemployment statistic from You be the judge.

Bureau of Labor Statistics Shows 10.2% Total Unemployment for October 2009 Shows Total US Unemployment at 22.1%

Chart of U.S. Consumer Inflation (NYSEARCA:<a href='' title='IQ CPI Inflation Hedged ETF'>CPI</a>)

Here’s a look at the US Dollar Index


The Dollar Is Effectively Worthless – Zero Hedge


From Zero Hedge – A picture is worth a thousand Krugman essays, which is why we present a chart comparing the US Monetary Base (and by subtracting Reserve Balances with Fed Reserve Banks, Currency in Circulation), and the Fed’s holdings of MBS and Agency paper (worthless GSE/FHA garbage). In summary: Currency in Circulation: $920 billion; MBS/Agency Holdings: $997 billion. The dollar in your pocket is now entirely backed only by worthless, rapidly devaluing and subsidized housing.

GLD Shares ETF ‘04 to Present

Gold is through the roof

Case-Shiller US Home Price Index


This crisis began in the failing of a fiat currency system, was exacerbated by the Fed’s reckless monetary policies, and was ignited by the mother-of-all-asset-bubbles know as the Sub Prime Mortgage Crisis. As I have always said this crisis was sparked by housing and will end in housing. Regardless of the minor recent bounce on the Case-Shiller Index the foreclosure numbers are growing and the shadow inventory that looms is daunting. There is nothing the Fed nor the Obama administration can do at this point but put Band-Aids on severed arteries.

No positions.