The Power of Experience

On March 8, 2010, In Deflation, Delusion, Denial, By Chuck Ponzi

One of the most powerful experiences that investment bubbles can teach us collectively is how conservative we should  be when burned multiple times.  Unfortunately, for many of those newly exiting business schools or unaffected by a downturn show an uncanny ability to ignore others’ experiences.  The most powerful lessons of this past “lost decade” in the US (if we will but open our eyes to learn it) is that outsized returns cannot be depended on, and that risk does not equal reward, it just means risk.

CALPERS, the California Public Retirement Pension fund is about to learn that lesson the hard way. Formed in the 30′s, but built on the back of the 50s through the 80′s, it’s investment options expanded from solely bonds to real estate, to equities.  During this time, America experienced the greatest growth of real estate, equity, and bond values.  But most of all, of leverage.  Sadly, most of the value “growth” in the US over the past 20 or so years has been attributed directly to monetary growth.  Indeed, as yields on lower risk returns shrink, perception of higher risk equity values go up.  Unfortunately, for many, this mirage has much more power, and this perception that trees grow to the sky and all charts go up and to the right meant that there was little risk in promising free healthcare and pensions to the moon for all who worked for the grand state of California.

Except that it can’t.  The high profile failure of CALPERS has been nothing short of stunning.  Having lost more than 30% of its total value in 2008, it is unclear how the future promises made to state employees can be filled.  Especially when those promises are built on expectations that returns are 7.75% over the long run.

SFGate recently reported that they are considering lowering their benchmark rate above.  As reported:

Larry Fink, CEO of the giant money management firm, BlackRock Inc., with which CalPERS has invested, told its board in July, “You’ll be lucky to get 6 percent on your portfolios, maybe 5 percent.”

Even that might be optimistic.  When mortgages were returning 10% and you could expect a 1% chargeoff ratio and a 1% management fee, you could maybe meet the goal with a moderate amount of leverage.  When mortgages are yielding sub 5% and chargeoffs and management fees eat up most of that, you’d have to create an insane amount of leverage, which only increases your risk, to make it even rationally feasible, if even possible.

Why is this important?  Well, the benchmark rate determines the contribution rates, both of members and the State Government.  This is only one of many elephants in the room in California that noone wants to talk about it.  At precisely the time when the state can least afford to spend even more money, it may be required to.  Which only makes the situation more dire.  State and local government employees in California (in many, but not all cases) already enjoy higher pay than their private enterprise counterparts.  In addition to that, they are afforded better health benefits, vacation packages, and generous pay packages and benefits upon retirement.  When the world has all but forgotten pensions, many state employees enjoy the grandaddy of them all, a defined benefit pension plan.

It even seems quaint to talk about it since few still understand the difference between the defined benefit and defined contribution pensions.  It will suffice to say that the defined benefit is almost always much, much better, and much, much more expensive.  It’s quaint because most people who are not state employees in California do not even have a significant 401K, much less a crappy pension.  This is nothing compared to the Cadillac pension plan that virtually ALL state employees get.

So, to sum it up, California faces a budget shortfall of epic proportions.  It has parlayed every non-GAAP accounting trick in the book to delay the day of reckoning, hoping that pink ponies save them, but they have not.  The bill is quickly coming due, and indeed, the state may have even more troubles.  There is no way out.  Without serious pension reform (hand their asses back to them), taxes will have to be raised.  Given that the state already recalled one governor over licensing fees, I see this one going over like a lead balloon.  Meg Whitman has been campaigning that she can fix this mess.  I’m sorry, but there is nothing that will fix that mess except for a miracle or much higher taxes.  This still will need to invent something seriously out of this world to make that happen, or bite down on the bullet of austerity to balance the budget and maybe put something away for a rainy day (if it gets any rainier, this place is going to figuratively float away).

We need another investment bubble.  Luckily, the goldrush of 1849 proves that there is significant gold in them thar hills.  Perhaps we can put a tax on pickaxes and heavy machinery that will help us cover some of the shortfall.  With the bubbly prices that gold is now fetching, it might just do the trick.  However, I wouldn’t expect the Marijuana tax proposed earlier to make a big dent.  We’d need some serious potheads to move here to make it work (and they’d have to be stinkin’ rich to boot).

No, perhaps we we all need to collectively do as Californian’s is to do what CALPERS will in the end be forced to do.  Lower our expectations.  But, when have you ever known Californians to do that?

 
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Whitney: Consumers Still in Trouble: Worse, not better

On December 9, 2009, In Bailout, Debt, Deflation, By Chuck Ponzi

Houston, we’ve got a disconnect.

Housing to the moon!

 
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The Coming Collapse of the Middle Class

On December 7, 2009, In Credit Bubble, Deflation, Inflation, Unintended Consequences, By Chuck Ponzi

Whether you like it or not, the truth is that the middle class has been squeezed over the past 30 years, as Elizabeth Warren of Harvard Law and the House Oversight Committee explains in the attached video.  it’s almost an hour long, but one of the most fascinating analysis I’ve ever seen with after and in-depth research into what is causing fundamental shifts in spending in the US within the middle class.  She touches on the role of women entering the workforce en masse and some definitely surprising findings (we are spending more on housing, but not really getting so much more out of it).  Healthcare, food, clothing, etc.

I would remind readers, though, that predicting is a difficult art to perfect.  As Elizabeth herself states, she would have herself been surprised by the outcome of the pressures.  In the same way, “collapse” is probably a misnomer.  We will adjust, but with a quite different set of priorities.  Technology has improved many parts of our lives; but has contributed little to our happiness.  Our ancestors would probably be surprised how little we do with our large amount of spare time, but surprised at how hard much stress our daily lives entail; which is probably the biggest toll that the housing bubble has had on America; the human cost is much greater than the monetary cost, especially considering that our children and grandchildren will pay dearly for our stupidity over the past 5 years.

 
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War on Prudence Intensifies

On October 28, 2009, In Bottom Callers, Dead Cat Bounce, Deflation, Housing Crash, By Chuck Ponzi
YouTube Preview Image

Much of the last 4-5 months has seen a veritable frenzy of activity in the housing market throughout Southern California and throughout the rest of the US.  What does this mean?  Have we hit a bottom?  Is it a dead cat bounce?  Or, was the last year a bump across the bottom before an explosion upwards?

Well, if you’re looking for easy answers, I don’t have a crystal ball, any better than anyone else, so it’s nearly impossible to tell you where its going.  But, I can tell you the basics of the Long, Medium, and Short term.  Much of this is common sense, but must be repeated constantly to remain tethered.

Long Term Prediction

Eventually, though, it’s an argument about inflation or deflation.  Housing prices relative to incomes, rents, and inflation have moderated, but at a much higher level than historically, as pointed out by Dr. Shiller above.  If this is indeed a bottom, the ramifications of higher home prices are profound.  Consider for a moment, the beginning of this thought expounded in the WAPO yesterday regarding the housing stimulus:

Putting cash in pockets does have a stimulative effect because some of that cash will turn into consumption. But as far as stimulus measures go, it has a low multiplier (the ratio of new economic activity to stimulus spending). By contrast, we could take the same cash and hire more teachers, police officers or soldiers to fight in Afghanistan. We would get more economic activity, and the government would get something for its money.

But the tax credit stabilizes the housing market, people say. What does this mean? It means that the credit keeps housing prices artificially high. But housing is something that all people need. Why do we want it to be expensive? Would we want government policies that artificially push up the price of food?

To take it a step further, is there anything in this world that we consume that we would cheer when it goes up in price?  Nevertheless, even knowing how wasteful, inefficient, and stupid the measure is, our congress seems intent on passing an extension of the home buyer credit.  Even worse, it appears to be expanding to existing homeowners, completely negating the originally intended purpose of clearing inventory.  Of course that could be in large part because inventory in many areas has dramatically decreased, and it’s simply a matter of pork and pork products for the housing industry.

Currently, housing prices receive the largest subsidy of any asset class, and for what?  To make our neighborhoods better in some way?

But isn’t it just better for more people to own their homes? The conventional wisdom is that homeownership has positive externalities: Homeowners are more likely to invest in their communities, and it is the best way to build household wealth. But the evidence for this is mixed. In “Our Lot,” Alyssa Katz cites three academic studies and concludes: “Scholars found that once they set aside the various traits that tend to determine whether someone chooses to own or rent one’s home, homeowners and tenants really aren’t that different. . . . Often the new homebuyers were purchasing the worst housing in the worst neighborhoods with the worst schools — hardly a solid investment.”

So, to recap, we’re giving money to people to do what they were going to do anyway, and thereby increasing our own costs and driving malinvestment into residential housing instead of manufacturing capacity or research and development reducing our country’s competitiveness.  We’re taking money away from firefighters, teachers, and policemen so that your neighbor can afford a larger SUV or better furniture, and this entire premise is built on the disproved theory that won’t improve our neighborhoods in any way?

As I mentioned earlier, the real fight is about inflation or deflation.  There is no doubt that inflation is a monetary phenomenon.  At the present time, the deflationary forces of deleveraging are stronger than the inflationary forces of the stimulus packages and absurd monetary policy.

Make no mistake about it, in the long run, our currency will be devalued through inflation to nothing.  This is the fate of every fiat currency, and given the political stupidity that occurs when large numbers of people vote conmen and shamsters into political office.  This is the state of the US, and there is no indication that this will ever change.  Just look at the last 30 years.  In this environment, you will want to hold assets, not cash in the long run.

Medium Term Prediction

However, in the long run, we’re all dead, so we need to know what’s going to happen in the next 3-5 years.  What we can expect are the following in the medium term.

1.  Higher taxes.  This is true of both state and federal taxes.  We are on an unsustainable path.  While most Americans would rather make do with smaller government, the fox guarding the henhouses will never allow themselves to be kicked out.  This means less money to be spent on food, housing, healthcare, education, etc.

2.  Low interest rates.  Financing will stay very loose as long as interest rates are held down.  This is the latest salvo on the war against savers.  Banks, governments, and every company is doing everything it can to separate you from your money.  Most Americans will simply give up because they know nothing else.  Saving will come from outside the US, and not inside.  American’s balance sheets are beyond repair.  Nothing can save the average consumer now.

3.  Commodities Bubble.  Expect the next bubble to be in hard assets.  Perhaps this is oil, gold, natural gas, copper, lumber, corn, porkbellies, wheat, etc, etc, etc.  The government DOES want prices to go up, and will do anything to make it.  It would rather destroy Americans in its quest to save them than to admit that they don’t know and just let the world sort it out.  Most commonly, those who think they understand economics are far more dangerous than those who study it.

To be sure, there are no easy answers, even in the medium term.  And, beware that many of the above issues work against each other, so it will all be relative.  For example, low interest rates will drive a weaker dollar, rising prices on products which will improve export industries that may end up increasing jobs and demand and moderate the decline of the dollar.  Such paradoxes routinely exist, and help prevent the currency of a diversified economy such as the USD from declining too quickly too fast.  But make no mistake, the endgame of the fiat currency is to fall to zero value.  Eventually, houses will hold their value, even if prices are still too high.  This just means that they will endure long periods of poor returns relative to other assets.

If housing prices stabilize here, there will be no free lunch that returns us to high returns. That can only come if they fall below intrinsic value, something I feel supremely assured in saying has not happened in Coastal California (not true of deep inland Cali such as the Victor Valley or Palm Springs).  Orange County, San Diego Coastal, Los Angeles Coastal, and Ventura and Santa Barbara Counties are still painfully overvalued in relation to their alternatives.

The medium term case to own a home in Coastal California is uncertain.  I predict that we will have a clearer picture in the short-term predictions, but there are no certainties with this much malinvestment.

Short Term Prediction

There has been a significant shift from foreclosures.  Various reasons abound as to the cause, but there is no clear reason that the Notice of Defaults has continued to rise to record astronomical levels while foreclosures have remained relatively low.

The Big Picture takes up part of that story with “Strategic Non-Foreclosure” and the Piggington site details some of the statistics in the recent past for SoCal.

Do not be misled, there is a serious imbalance that has grown between defaults and foreclosures.  Foreclosures are dramatically lower than they should be given the incidence of defaults.  There are 2 possible reasons for this imbalance:

1.  Banks are having difficulty foreclosing.  Numerous possiblities exist for this reason such as poorly equipped staff, moratoriums, trepidation of foreclosure while on government dole, stated contradictory policies, and many more.  The general perception is that this will eventually result in higher foreclosures once the problems are dealt with.  Noone knows when that historical balance will return.

2.  Banks are actually working out modifications and they are sticking.  This could mean that a dramatically higher number of modifications are being approved and they are having the intended effect of reducing the market’s fall.  This would be difficult to explain.  Never in history has this happened, but never in history have we been this indebted before either.

While it’s entirely possible that #2 is happening, the risk is much higher that #1 is the actual case.  The table is clearly tilted on a risk/reward basis that #1 is happening. Smart money should hold out at this time until the trend is clear.  While the past 4 months is the first indication of stabilization, an unbroken 1 year trend will be the clear signal.  The soonest that could happen is next spring.  That is the earliest BUY signal that the housing bubble could  give us since Summer 2005.  We will simply have to see if that buy signal is confirmed for early entrants.  Purchasing now is highly speculative and likely to result in knife-catching.

According to Occam’s Razor, it is beter to attribute the latest moves to #1.  I cannot stress this enough that the risk/reward ratio still favors waiting for much of Southern California.  The exceptions to this are areas where buying is at a significant discount to renting (some exist).  It doesn’t preclude the possibility of failure, but it does give options for medium term and longer term trends to mitigate the risks of buying a home now.  For coastal california, any purchase now can only be seen as speculative and imprudent.

The Final Wrap

The basis of any bubble is a speculative frenzy.  Recognizing the attributes of a speculative frenzy and the stages bubbles go through is critical to timing any asset purchase.

bubblecapitalism

Remember, there is nothing more fundamental to investing than timing.  Anyone who tells you otherwise is a fool.  Timing your purchases of stocks, bonds, commodities, housing, or any other asset is critical to success.

My hope was that this country and its leaders could see the value of letting housing prices fall to their intrinsic demand value, but leadership is nearly absent in US politics today.  There does not appear to be an opportunity for this to happen any time soon.

 
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PBS vs. Greenspan – The Warning

On October 22, 2009, In Bubble, Debt, Deflation, Delusion, Speculation, Unintended Consequences, By Chuck Ponzi

“We didn’t truly know the dangers of the market, because it was a dark market,” says Brooksley Born, the head of an obscure federal regulatory agency — the Commodity Futures Trading Commission [CFTC] — who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country’s key economic powerbrokers to take actions that could have helped avert the crisis. “They were totally opposed to it,” Born says. “That puzzled me. What was it that was in this market that had to be hidden?”

 
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Are We There Yet?

On September 17, 2009, In Deflation, Delusion, Denial, By Chuck Ponzi

ArewethereyetThis post is being put out for those readers who are seeing the unfolding of 2009 and wonder if we are at a housing bottom. Indeed, volumes have increased dramatically, and one can hardly turn on the tv, radio, or internet without being barraged with news that the housing market has hit bottom and is quickly recovering. I understand why one would be confused. After all, the housing market has improved, and the global stock market is deeply in rally territory after hitting rock bottom in March. However, this is time time when one has to ask themselves why they were waiting to buy a house in the first place. Was it because it was too expensive? Was it because you were worried about prices slipping more? Or, was it just because you wanted to catch the bottom and look like a genius in 10 more years? Well, if any of these motivations, you’ll have different answers of when to buy.

If you waited to buy a house because it was too expensive, ask yourself, is it too expensive now?  This is the easiest concern to get over.  In the throes of the housing bubble, you would have been told by your agent that you should just lower your expectations.  Buy a smaller place.  Buy a place further out.  Buy a place you don’t want, but can afford.  I’ll dispel any myths, there is no such thing as a crystal ball.  Just as I tell you that scamsters like Gary Watts didn’t know was going to happen, we also only operated on verifiable information.  All information is telling us that while a bit of affordability has returned, the underlying problems with the housing market still exist.  Let’s outline those quickly:

1.  Housing exceeds healthy income limits for much of Southern California (inland areas are back to a healthy level, so this really only refers to coastal areas, and some pockets throughout.

2.  Interest rates are low, masking the affordability problems mentioned above.  Rates are low because the Federal Reserve is intentionally targeting mortgage rates by purchasing up to 50% of all issued mortgage paper.  This is only intended to be temporary, and at some point, not only will this be removed, the current leverage must be unwound.  It is likely that interest rates will proceed higher.  While noone can know for sure when this will be done, it is likely to have an impact in the 2nd half of 2010 and into 2011.

3.  Unemployment in Southern California is increasing.  This is a known fact, and is expected to peak sometime in 2010 if things immediately improve.  However, it is expected that the decline will be less than steep, and high unemployment could persist for up to 5  more years after the recession ends.  Add in that California has become a very difficult place for many businesses to continue due to high taxes and infrastructure problems, and many companies are looking at alternatives if they upstaff.  Only lower wages will attract them back.  Lower wages do not increase home prices.

4.  The option-arm Tsunami has not come yet.  With an expected default rate that is much higher than subprime, and a concentration in coastal California, much of pain that inland areas sufferend is expected to occur in the more expensive areas.  If this materializes, buyers today are “catching the falling knife”.  The option arm recasts are expected to peak starting this quarter and cresting late 2010 and not declining until 2011 or 2012.

5.  The move-up market is dead.  The most starkly different part of this bust versus prior busts is that many, many people over-leveraged their houses even more than their increase in value.  Indeed, so many people are underwater at prices that locals can afford that it’s impossible for the majority of home buyers to move up at all.  This is one of the reasons that the low end is the most active areas.  Higher areas are simply over-priced for locals who fear for their jobs and have suffered a calamitous stock market setback.

6.  The banking system is unhealthy.  Leverage, and indeed money supply is decreasing.  This is the backside of a debt-fueled overcapacity bubble.  First, it was businesses that were overleveraged.  Then it was households.  Soon, it will be government, and there won’t be enough income to support the levels of debt and still account for imperfections in the system.  Someday, we’ll worry about

So, if you’re still interested in buying after knowing all of that, don’t say nobody warned you.  I understand, sometimes the social peer pressures push us to do irrational things.  Just look back at the bubble.  And, with the seemingly invincible Federal Government pulling out all stops to stimulate housing sales and ownership, it might seem that you just want to throw in the towel and give it up.  I know, I’ve wondered if it’s worth the wait.  I won’t think bad of anybody who buys now.

However, if you’re waiting for prices to come down more, I believe they will, but don’t fool yourself, no one will intentionally catch the bottom.  I don’t believe we’ll see the bottom until noone cares anymore, that’s how bubbles work historically.  We are, however, still pulling demand from the future.  We’ll overshoot by that much, at some point.  It can be fast and painful, or it can be slow and painful.  Either way, we haven’t had pain in the coastal areas yet.

Besides, if you’re wanting people to think you’re a genius, you might be surprised to find that no one likes the smartest guy in the room.  I know a lot of Goldman Sachs employees are finding that out.

 
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Obvious Statement of the Day: Underwater Homeowners Drowned Themselves

On August 6, 2009, In Debt, Deflation, Housing Crash, By Chuck Ponzi

drowningindebt

It’s no surprise to most readers, but banks are finally figuring out that which was already extensively investigated and reported on by SoCal bubble bloggers; that the primary determinant of foreclosure is not the point at which the buyer purchased the home, but rather all of the “wealth harvesting” that was done via refinancings and second mortgages.  Nowhere is this more prevalent than in Orange County, it seems.  Most of the area’s extravagent showings of wealth were actually extracted from home equity.

A recent study by CSU Fullerton with assistance from Fannie Mae has linked the correlation of cash-out refinancings with foreclosure.  The main takeaway:  Homedebtors who are now in foreclosure are not victims of circumstance (the prevalent thinking in Washington), but rather victims of their own selfish and greedy tastes.

The Wall Street Journal has some a great summary up by Nick Timiraos.

Michael LaCour-Little, a finance professor at California State University at Fullerton, looked at 4,000 foreclosures in Southern California from 2006-08. He found that, at least in Southern California, borrowers who defaulted on their mortgages didn’t purchase their homes at the top of the market. Instead, the average acquisition was made in 2002 and many homes lost to foreclosure were bought in the 1990s. More than half of all borrowers who lost their homes had already refinanced at least once, and four out of five had a second mortgage.

The original loan-to-value ratio for these borrowers stood at a reasonable 84%, but second and third liens left homeowners with a combined loan-to-value ratio of about 150% by the time of the foreclosure sale date.

Borrowers, meanwhile, took out around $2 billion in equity from their homes, or nearly eight times the $262 million that they put into their homes. Lenders lost around four times as much as borrowers, seeing $1 billion in losses.

“[W]hile house price declines were important in explaining the incidence of negative equity, its magnitude was more strongly influenced by increased debt usage,” writes Mr. LaCour-Little. “Hence, borrower behavior, rather than housing market forces, is the predominant factor affecting outcomes.”

What happened in SoCal over the past few years has been tragic, not only because of what happened to families, but rather that it was a tragic waste of human abilities; a misallocation of our skills into a non-productive asset.  Rather than investing time and capital into a productive enterprise, it was wastefully fed into a giant Ponzi scheme.

Unfortunately, old speculative habits die hard, as is evidenced by the dearth of investment-worthy housing in the midst of a sea of WTF asking prices.

Now that the goose that laid the golden egg is killed, cooked, and finding its way through the proverbial lower intestine of our financial system, wealth will need to be made from something other than housing.  Here’s to hoping it’s something that actually produces value for our company.  However, considering the loose monetary and regulatory policies that are still written in stone, I wouldn’t hold my breath.

 
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Broken, broken, broken

On July 22, 2009, In Deflation, Forecasts, By Chuck Ponzi

ca-budget-pic

California has staved off the day of reckoning for a few more months.  The can has been kicked further down the road with everything from taking from municipalities to pushing out payroll days to the next fiscal year (good thing they don’t have to conform to GAAP, or that wouldn’t have worked).

However, Jack Kyser is telling us that it’s not going to get much prettier.

Personal income will drop 2% in the state this year, the report said, the first annual decline since 1938.

“Most people haven’t experienced anything like this in their lifetimes,” said Jack Kyser, founding economist of the Kyser Center.

California’s jobless rate, which was 11.6% in June, will average 12.6% next year, according to Kyser, who also projected that Los Angeles County’s unemployment rate will be even higher, averaging 12.8% in 2010. The county’s jobless rate was 11.3% last month.

It’s going to be a doozy, and the economics aren’t getting any better.  Ever wonder why?  Well, the state and its municipalities are very generous to some people.  Take fire chiefs for example (I have nothing against them), but as the following story illuminates that a recent police chief retired at 51 with a $241,000/year pension plus still works as a “consultant” in the same job he just retired from getting paid $176,400/year.  Folks, that’s $417,400/year.  Retired.

The Wall Street Journal gives us the report on the outrage.

Still wonder why California is having budget problems?  Really?

Kyser says:

Kyser did not agree that the budget fix would help matters. Losses in revenue will continue to dog municipalities throughout the state, he said, potentially even pushing some into bankruptcy. Budget cuts will make it even more difficult to create jobs.

“The news from Sacramento is going to create more problems next year,” he said. “It could even get worse.”

It’s not getting better soon, though Kyser’s detractors say that the unemployment picture won’t go as high as the 12.6% he predicts next year.  I would only believe that with  mass exodus to nearby states/countries.

 
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Schwarzenegger to California: Day of Reckoning

On June 2, 2009, In Deflation, Panic, Psychology, SoCal, Unemployment, By Chuck Ponzi

I love it when a plan comes together – A-Team’s Hannibal

Schwarzenegger to California: Day of ReckoningArnold Schwarzenegger has fired off his assessment of where California is today.  In short, we’re screwed.

Declaring that “California’s day of reckoning is here,” Gov. Arnold Schwarzenegger said today the state should turn its dire budget straits into an opportunity to make government more efficient.

Speaking to a rare mid-year joint session of the Legislature and other constitutional officers, Schwarzenegger acknowledged the billions of dollars in spending cuts he has proposed to close a $24.3 billion hole in the budget will be devastating to millions of Californians.

“People come up to me all the time, pleading ‘governor, please don’t cut my program,’” he said. “They tell me how the cuts will affect them and their loved ones. I see the pain in their eyes and hear the fear in their voice. It’s an awful feeling. But we have no choice.

“Our wallet is empty. Our bank is closed. Our credit is dried up.”

There’s still some hope:  Here’s where the cuts are coming from:

Schwarzenegger has proposed a plan that relies partially on accounting maneuvers and borrowing funds from coming fiscal years, but mainly on deep cuts in nearly every program funded by state government.

Those range from cutting spending on K-12 schools, community colleges, the University of California; releasing some non-violent prisoners a year early; cutting pay for most state workers and laying off others; closing 80 percent of the state’s parks, and wiping out or paring back on health and social service programs for California’s neediest residents.

California is broken and needs to be fixed to keep people here.  Maybe that’s not what we want.  Growth for growth’s sake has proven to be an untenable solution for us.  While we mourn the loss of programs, let us be happy for the new found frugality and self-sufficiency.  Maybe some day we can save up in the fat years to prepare for the lean years.

 
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April was a Shocker!

On May 13, 2009, In Dead Cat Bounce, Deflation, Foreclosures, By Chuck Ponzi

CNN Money today gives us our money shot for the day while interviewing Realty Trac for insight into the April foreclosure numbers:

Foreclosures in April exceeded even March’s blistering pace with a record 342,000 homes receiving notices of default, auction notices or undergoing bank repossessions, according to a regular industry report.

One of every 374 U.S. homes received a filing during the month, the highest monthly rate that RealtyTrac, an online marketer of foreclosed properties, has recorded in four-plus years of record keeping.

“April was a shocker,” said Rick Sharga, a spokesman for RealtyTrac. “I would have bet on a dip because March foreclosures were so high.

Instead, filings inched up 1% from March and rose 32% compared with April 2008.

Indeed, for those who do not keep up with the lingo, you may want to google what a shocker is.

For those wondering, I’ll give a visual:

Shocker!

Shocker!

If this is in bad taste, let me know, but the foreclosure numbers are definitely a surprise.  Sometimes, I’m not sure if living in SoCal has warped my sense of humor.

And, for those seeing green shoots in the economy, I doubt you”ll be seeing a corresponding positive report out of housing.  We may very well be in a strong dead cat bounce this year (much like California experienced in 1993) as housing prices realign themselves.

There were 63,900 bank repossessions, the last stop in the foreclosure process. More than 1.3 million homes have now been lost to foreclosure since the market meltdown began in August 2007.

The increasing foreclosures will force RealtyTrac to rethink its forecasts, according to Sharga. “We had been predicting 3.4 million filings for the year,” he said, “but we’ll blow those numbers out of the water.”

With so much uncertainty, I can only stand by my predictions for 2009.  There will be some up and some down areas.  Overall, the direction is down.

 
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