Dubai and Critical Mass

Hope all of you had a great Thanksgiving. :)

I was going to provide more statistics on the housing industry to show that the bottom hasn't been seen yet, but decided to wait until the bottom arrives.

An interesting statement the other day was that half of the world's banking losses have not been realized yet. I think Dubai, a country with no oil, may start to bring that to the world's attention with their decision to suspend debt payments, on about $70B, for 6 months. It seems prudent to take this step versus letting bankruptcy determine it. What American banks are directly/indirectly affected? And what affect will this have on credit expansion or constraint? But given our country's spending level, this debt amounts seems small in comparison.

Have you seen an aerial view of Dubai lately? They claim some of the tallest buildings in the world, and all around is sand and ocean. It's a huge 'resort city' that has imploded. It's a beautiful example of the extreme material excess the human has reached. Any extreme reaches a point of critical mass and then heads in the other direction, symbolized by Dubai.

Unreal World, The Beat Goes On

The markets buoyancy is amazing to me.

* Foreclosures hit a record high for the 9th straight month with 4 million homeowners either 3 months behind in payments or in foreclosure. The government backs more than 50% of the $10 trillion in mortgages through FRE and FNM. Also it backs VA and FHA loans; covering 99% of the mortgages. I think the housing market is in jeopard of recovering in 2010. I see the price of homes continuing to fall. And 20% of the economy is comprised of housing and related business.

* The government sponsored Pension Benefit Guarantee Corporation could need up to $202B. It covers 44 million of private sector workers. The demand for federal financial help is expanding in many areas they control. The numbers change frequently.

Also, California is projecting a $20.7 billion budget gap for 2010, and it could continue at a pace of $20 billion a year through 2015 if the state does not fix this by living within their means. Where are the realistic forward thinkers who look beyond the end of their noses when putting these budgets together?

I believe that given all the disruption that is occurring from changing the recommendations on when to have mammograms, trying the terrorists in New York versus a military court, and the myriad of actions that are reinforcing us as a debtor nation, is for our benefit, individually and collectively, to become less complacent and more self-reliant. This president appears to be planning on a one term only given his words and actions. His intention is to make as many changes as possible. The louder the resistance, the more the resolute he is on implementing his beliefs and agendas. Change is good and the human reaction is to resist change. Yet the changes I see happening to do not encourage us to be independent and resourceful. Change takes time, determined by the perceived magnitude of it. For example, the healthcare change that is needed cannot be shoved through congress, unread by those who vote on it, and expect it to be a change that benefits the highest good. Given that it accounts for close to 20% of the economy, we need to go through the process of taking the time to read it, discuss it, and compromise or collaborate on the disagreements. Many inputs are better than a only a few who look at it one way. We need all inputs to round out the view to see it the 'best' way. We can't afford not to, especially now with the magnitude of our debt. We are diminishing our ability to print money and keep interest rates at zero if there is another financial earthquake of our making.

Given my background in accounting and economics, you can see I am conservative when it comes to the financial arena. I have always disagreed with the way our government spends beyond its means. I voted for Perot in protest. I'm looking forward to seeing a qualified 'independent' decides to run for president in 2012. I am taking action in whatever way makes sense to me to move the energy of this country toward being fiscally responsible. It looks impossible, yet I believe anything is possible. :)

New Era to balance materialism with other important aspects of life

We seem to be entering a new era. Expectations need to be readjusted. What lies ahead is a positive because we need to contract to balance out the excesses and sweep away the dead matter. I trust that delaying it through government intervention is to help us collectively be prepared. What may seem bad is a healthy cleansing and correction of our patterns so humanity can be uplifted. We can clearly see how the burden of debt affects companies, individuals, and so on. It's time to start to move away from materialism as the 'only' focus and allow a higher quality of life on a nonmaterial level. We can only see this new path by losing the material aspects that have controlled our lives.

The stock market is staying buoyant from company earnings exceeding expectations. Keep in mind they have trimmed their employee base to do this and the numbers are reflected in the unemployed. There needs to be a focus on the small businesses in encouraging them to take the responsibility in creating jobs. There are incentives to support this, but our leaders are moving in the opposite direction; still looking as to how the government can create the jobs.

The contraction of consumer spending is very good. Including savings as a part of our personal budgeting process is essential. We need to look at how to export more goods and services to consumers in other countries instead of relying on us to do the buying.

Deficit spending is on the increase as Mr. Geithner tells the world a strong dollar is important which means reining in our spending and increasing interest rates. We continue in the opposite direction. I know they are waiting for the right timing, but I think that when we arrive to what that is we shall see the error of our ways, and it will be too late in that we will have to experience the magnitude of that mistake.

FHA, the government controlled housing lender needs a bailout. Add them to the list with the others like FRE, FNM and so on that I have mentioned before. This is another marker to see that foreclosures and the housing foundation is still trying to find a bottom.

The FDIC has run out of money i.e. insolvent. They now have ordered the banks to 'prepay' $45B to keep them in business of closing down 'insolvent' banks. The banks with the biggest bill received the most TARP money. I look at this as a creative accounting action of the government borrowing from the government in an indirect way.

I'm smiling as I write this. And I'm glad to be around for this part of the world's journey. :) :)

Government Control of the Housing Industry

I had an educational moment around borrowing to buy a home this week after inquiring about a V.A. loan. Here was the answer. A short sale (which we had July 2008) is treated the same as a foreclosure, therefore three years have to pass to qualify for any government backed loan. I asked the loan officer of U.S. bank what their bank policy is. He said they sell all of their home loans to Fannie Mae. I asked what Bank of America does and he said they sell their loans to Freddie Mac. I had to smile seeing a bigger picture of the widespread influence the government has over the housing market.

Fannie Mae wants another $15B of the emergency funds which is the 4th request this year for additional money. Both this company and Freddie Mac are insolvent and only held up by government intervention and ownership.

The $8k housing credit was extended to June 2010 and a new $6500 tax credit is now available to all who have owned and lived in their home for at least 5 years. I wonder if that means they have to sell their home to buy another, or just own a second home with this credit.

10.2% unemployment announced today, highest since 1982. In that year, I was working in the defense industry and the cold war was a major focus. I didn't experience any fallout from that recession.

I will continue following the housing situation closely since I see that as the realistic measurement that the recession is over.

Respecting the Bear, CIT, Government Saving

The bear hasn't gone into hibernation yet as seen with the daily emotional up and down of the markets, along with the unstable foundation with home sales and jobs. Investors are being externally driven which implies there is no solid foundation within themselves that says their investments are sound and to hang in there through the rough waters that are indefinite.

Cit filed for bankruptcy Sunday, the largest company who provides loans to small and medium companies. The question is will the funding continue. It is critical now since the big banks are not lending to this part of the sector that provides the most job opportunities.

The 500 largest non-financial companies are conserving more cash than in the last 40 years, to cover daily business costs since the credit markets stopped lending in 2008. This is a positive move and an example for the rest of us to consider. The federal government needs to learn about 'saving' energy. Their actions reflect the opposite, spending freely while their words say we have to 'cut the deficit.' This collective conflict does not allow for innovation, responsible behavior, or long-term planning for the highest good. Good business means having a goal, defining what resources are required and a plan showing how to get there. The implementation of the plan and the ability to be flexible when the unseen affects the plan are keys to success. The government is trying to micro-manage every area like healthcare, the financial sector and so on. Until it learns how to manage in a business-like manner, the primrose path beckons.