Herman Cain

I have been silent because I write when I feel strongly about something and my previous posts became repetitious. That is part of the process, but as I have emphasized in the past, until foreclosures reach a bottom, our financial world will limp along with these gyrations in the stock market that occur on a whim. Yes, Europe and other factors weigh in, but in our environment here, this is the challenge along with continued spending.

What has brought me back to writing here again is Herman Cain. He impresses me because he has radical ideas and that is what we need. The same path will only create more oppression because of our debt level. We will be stifled and I'm concerned that we are moving more toward 'apathy.' That is not the path for a democracy and capitalism. His background in business and the federal reserve shows that he has experience on both sides. His 9 - 9 - 9 tax plan is simple yet would have a profound impact on our country if implemented. This is what we need now. The two frontrunners that the media promotes are too much of the same that we have today. This country needs someone who has the endurance to go up against the old guard and have the staying power to implement the changes that we need to start a new path for the country. Without this, our legacy for the young people and unborn will not be something to be proud of.

The Numbers Tell the Story

I seem to be locked into viewing the continuing foreclosure momentum. There are 5 million families who owe at least 25% more than what their house would sell for. 2 million go underwater if their houses loses 5% of their market value. There are about 11 million underwater. The biggest statistic is that since 2006, families have lost $7 trillion in home equity value. That has created a huge psychological impact to feeling rich or poor and what and when to spend money. Compare that to the trillions in debt this country has incurred and one can see that we are being bombarded from all directions. The housing situation is more subtle yet powerful in its influence over everything else. Look at Fannie and Freddie and the billions they ask for quarterly with no ceiling in effect like our debt ceiling that Congress has to vote on. They receive what they ask for. This is a reflections of millions of people losing their biggest asset. Viewing the headlines today, it seems to be under the radar because there has been so much emphasis on it in the recent past. Yet it will come back to the surface again, because action is required to set this on a different path.

Bernanke's latest implemented plan to buy $600 billion of bonds to keep the interests down and the dollar lower has created the opposite effect. Since our search for a home, the mortgage rate has gone from 4.12% to 4.7%. That is a 14% increase in less than two months. On a $150,000 mortgage, that is an extra $72.50 a month.

Numbers are meaningful. They tell the story. Is there anyone interested in reading it?

Change

Change is everywhere and more noticeable when it is not judged as good or bad. The establishment is showing its resistance as the final elections completed yesterday. What is reassuring is that the resistant energy is not strong enough to stop the change that is necessary, especially in our government. Ignorance, inexperience, and ineptness cannot stop it. Collectively, I think we have caught on that this country is in the hands of all of us; the individual, the average citizen. The incumbent of each party needs to go.

I enjoy looking at the details, at the root level to estimate how much longer this country and the world will continue to contend with more than a recession. That is why I focus on foreclosures and watch to see what is being done with Fannie and Freddie; two companies run by the government now that is a trough for most of the mortgages, and that have unlimited funding provided by the taxpayer. They are so big that there is concern that any change with how they are doing business would cause a major negative impact to the housing industry. What I see is no change in their direction and this feeds on itself. When homeowners are under water, they stop spending and begin looking at walking away. When they are behind in mortgage payments, they stop spending on other things, that which this country counts on to have a healthy economy. This kind of uncertainty leads to saving verses spending. Without strong leadership in this arena, I see the economy staying the course like it is for another two years. And I see banks having to go through another round of solvency review as the mortgages continue on the same path.

Is there any part of your life that is continuing on a path that you would like to alter, yet have chosen not to yet? Take a look at the health of the roots of your life and see if there is a step to take outside the normal groove. Individual change contributes to collective change that is reflected in our government and the world's too. Today, we have a birds eye view of the outer world and it points to the roots in each of us.

Housing and Attitude

Big numbers have come out; existing home sales down 27%, new home sales down 12%, the largest ever in the month of July. The postponement that government intervention with home buying credits and refinancing underwater loans caused is now over. We should have had this fallout last year. Now it is going to continue into 2011 and 2012. This makes me think that we did not move out of the recession as the experts told us. We have been in it all along and the discussion around 'double dip' is misnomer. When there is uncertainty like this that continues year after year, the lenders naturally contract and hold back funds. It is a paradox and can only change at the grass roots level. The government is ineffective when trying to manage it.

In this midst of this, my husband and I have spent a week trying to find a lender on a home we would like to buy in Southern Oregon. I am fascinated by the stories and ignorance among the different lenders' representatives. They err on this side of saying no. We are looking for the open door. It only takes one to say yes.

Use this period in life to see how you want to participate in what the world is experiencing, knowing that as an individual you have a lot of power. It may not appear that way, but know that it is true. The foreclosures continue unabated every week and behind each one is an individual(s) who lost their home. Like your vote, every action accumulates and once the critical mass is reached by enough of us participating, like in this example, the walls come tumbling down. The whole world feels the earthquake.

We need to change our attitude on how we view reality to make a permanent change that will reach the top; the world governments. Again, it's one individual at a time that makes the difference.

Backpacking, Housing

I just returned from the annual backpacking trip in the Marble Mountain Wilderness and want to share an observation. Nature does not discriminate. There were ponderosa pines, douglas firs, cedar, and other varieties of trees all growing together. Some were old with gnarled branches and some seedlings. Some were straight and others crooked. There were tall and short ones sharing the same space. As I looked at this picture, I thought of humans and how we are like those trees; different colors, ages, sizes, ethnic groups, and physical appearances. If we watch Mother Nature, we can see how life works here as we share this planet. She is a good teacher and can provide a strong foundation to instruct us how to live with each other without prejudice and judgment.

An article I read upon my return, related to the housing industry, is that 1 in 7 homeowners with mortgages greater than $1M are in default. The majority of holders are walking away. The magnitude is big because of the size of the mortgages that the banks hold. This situation is adding to an already precarious condition that continues with the other mortgages. I watch certain housing statistics in my areas of interest on Trulia. For the first 10 days of July, 80-90% of the new listings are foreclosures. One area is Grants Pass, Oregon. There were close to 300 new listings in this category. A couple of months from now, most of those will be listed for sale through a realtor. There still is no rush to buy a home. I don't think this market will bottom out this year.

One other note, 8% of the new loans as of February 2010 were low-doc mortgages. This is one of the reasons the banks got into trouble in the first place; not making sure the borrower could afford the loan. It amazes me that this going on when the foreclosures have not peaked from the previous loan policies.

Hawaii, Foreclosures, Voting, Healthcare

Last week, I returned from a 2 week trip to Hawaii. Today, I see that an 8.8 magnitude earthquake in Chile has sounded the tsunami sirens in Hawaii. Interesting timing. :)

The foreclosure situation continues to lead the way. With new and existing home sales still spiraling down, I read of a 'new' plan being considered by the Treasury; a proposal banning ALL foreclosures unless the loans have first been screened and rejected by the government's Home Affordable Modification Program. Given the government's performance in how programs are 'managed,' I see only a delay in the inevitable. These reductions in sales are with the government tax credit. This does not bode well, especially after this program ends June 2010.

Fannie Mae needs another $13.5B in government aid because of the $15.2B forth quarter loss; total loans of $75B. There is no one who has his/her arms around this part of the financial system: Housing.

The FDIC problems banks rose to 27% in the last quarter to 702. As I indicated in a previous blog, given the doubling of the employee base in this agency, this is no surprise.

Dianne Feinstein's response to my request that she vote 'no' to reconfirming Bernanke was that she felt he should have 'another chance.' As I have indicated before, I am using what power I have to vote all incumbents out of office; Democrats and Republicans alike. I encourage each of you to use your voting power in whatever way you choose. It is important to vote.

In the past, I have made few comments about 'healthcare.' After seeing excerpts of the summit moderated by the president, I think objectivity is lost. I do not understand why 'tort reform' and allowing private healthcare providers to cross state lines are rejected as part of the plan. As I have indicated by my experiences with Blue Cross when it was the only choice being offered, I know it would be very beneficial in encouraging competition. I continue to write to Ms. Feinstein and Ms. Boxer. So far no response. It's is quite trying to live in the liberal state of California and be ignored on selective subjects.

Debt Ceiling, Foreclosures, Economy

The senate passed legislation to increase the federal debit limit by $1.9 trillion to $14.3 trillion. There is beyond comprehension to add this amount without any bipartisan support. I am concerned that we will spend this debt money faster as a result versus taking prudent steps by increasing it incrementally. I can only hope that the house will take a pause on this one. We have moved outside human understanding with this amount of money and I don't think we have the ability as a country to come to terms with what we are doing given our current level of consciousness.

The economy showed a large increase as companies replenish their inventories. This looks like an anomaly, yet it is growth.

Foreclosures statistics are still my main reference point in determining when we have made the final turn to solid recovery. Same real estate sales were down almost 17% and new real estate sales down almost 7%. If we follow the path of what we did for the banks, home owners would be given a principal reduction along with a smaller interest rate. I don't see any other way to

stop the flood that is picking up momentum. I don't agree with taking this approach, yet given the direction congress and the president are taking, this may be part of the pie too.

Interesting Pointers to Start 2010

Some interesting threads that provide insight for this year:

* The FDIC is going to double its staff, adding 1600 people. It handled the closure of 150 banks in 2009. I would estimate they plan on closing at least 400 banks this year. Commercial foreclosures this year will definitely have a huge impact on the vulnerable banks. There's a current 10.6% vacancy rate.

* Foreclosures on Trulia continue to be the majority of new home listings in the areas that I track.

* The Public Pension Fund has a $2 trillion deficit and they don't use market-to-market accounting, so the assets are over-inflated and the deficit is bigger than being reported.

* Chris Dodd's retirement after over 30 years in congress is unsettling. I think it goes beyond the fact that he may not get reelected. Keep an eye to see what unfolds.

* The 'behind closed doors' health care negotiations is so contrary to our system and nonsensical that it stands out. Even more so now that the head of CSPAN has asked to be put the cameras in place to record what is happening for public view. Again, as I have said before, this seems to be a one-term president for continuing to allow this kind of behavior.

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. :)

U.S. Dollar and Foreclosures

Gold is over $1000 an ounce and other commodities are going in the same direction. The U.S. dollar is down. For the first time since 1976 the Canadian dollar is equal to ours. The Euro has reached a new high against the dollar. Countries are diversifying out of the dollar. For example, Russia use to hold 90% in dollars and now it's 45%.

Today, the Treasury Department acknowledged that 'there are millions more in foreclosures.'

These facts are reconfirming what I have written about in this blog. Given the markets continued climb in the month of September when historically it has been different, it seems that psychologically investors will hang onto any piece of optimistic news and invest.

Progress Report

The 'cash for clunkers' program is encouraging consumers to increase their debt, so I'm not surprised that retails sales are lackluster at best. The economy is still contracting, regardless of the U.S. government's efforts to artificially kick it in the rear.

Foreclosures in July are 32% higher than July 2008; close to 7% higher than June 2009. The medium price of homes dropped close to 16% in the second quarter. In my opinion, this is the measurement stick to watch. When this area turns the corner, then there will be the opportunity to move forward.

Another statistic to watch is consumer and commercial bankruptcy filings. For the former, there was increase of 34% over the first quarter of 2009, with California being the leader in filings. As I have mentioned before, the commercial sector has yet to unfold as to the depth of their financial struggle.

North Korea, China, and Tidbits

Fingers are pointing at North Korea for the recent cyber attack on South Korea and several different U.S. agencies; National Security, Homeland Security, the State Department, Pentagon, White House, and New York Stock Exchange. The news is that the software attack was successful with the Treasury Department and the Federal Trade Commission. I don't think we will be told the depth of the other successful penetrations because of national security. I am surprised that North Korea has this kind of enterprising ingenuity. The picture by the mainstream is that it is an impoverished nation and using the threat of nuclear missiles to get attention. Perhaps this country is doing a lot more behind the scenes while it keeps our attention with the surface threats.

China's behavior with its citizens is consistent with their communist system. It's a good reminder for those who only focus on the economic interdependent relationship we have. China has been around for thousands of years and our country only 233 years. We need to learn to look far ahead, economically, like they do and act accordingly. This is the biggest benefit that I see they can teach us.

51% of all foreclosed homes have had prime loans, not subprime. Yet all the news for the last couples years have blamed this on subprime and the associated actions from banks, mortgage brokers and so on. This statistic shows that as home prices continue to fall, more people who are underwater are going to walk again from their mortgage.

The market is getting close to testing the 8000 mark again. Watch the patterns that show us repeated cycles and invest accordingly.

Things Happen in Threes

North Korea has renounced that its truce. originally established in 1953 with South Korea. Within the past decade it also abandoned this truce in 2003 and 2006.  I'm observing that this is the third time, but also that about every three years, this intention occurs. Given that the leader is priming his son for the top spot, I think that he will take whatever steps he deems necessary to transfer that power to his son.  He does not seem to have any concern for the well-being of his people at the survival level, so he is unpredictable. 

Some tidbits:

*  The dollar has lost 96% of its value since 1913.  Keep an eye on it to gauge how we are doing creating and managing the escalating debt. The lower it goes, the less stable we appear to other countries who buy it.  Also Standard and Poor reaffirmed our AAA rating as a country. What else can they do? So goes the U.S. and the affect on the world will be devastating.

*  There were 616,000 foreclosures in the first three months of this year, a record high.  Fixed rate loans represented more than half, where in the past adjustable rate mortgages were in the lead.  

*  12% of the homeowners are behind or in foreclosure.

We are all in this together. The 'bump' that I referred to before has yet to arrive.  I call it a bump because it won't take much given the momentum of government spending.

Reality versus Illusion

We are hearing words that the financial system is 'healing' and the housing market has 'bottomed.'

Here are some facts:

*  The national median home price is $169k, falling 13.8% for the 1st quarter of this year, another 6.2% since 4th quarter of last year.  Half the sales were foreclosures and short sales. Both sell for about 20% less than traditional housing asking prices.  This process will continue.

*  Foreclosure notices rose 32% in 1st quarter of this year compared to 1st quarter last year, and the banks are active in moving the process along.

*  Bank of America, Citi, and J P Morgan Chase represent 60% of all unused credit lines. They cut $320B in lines during the 1st quarter of this year.  This is in addition to $408B in the 4th quarter of last year.  The outlook is that closing these lines is gaining momentum, which is really going to put the squeeze on the consumer in even meeting their basics needs, let alone their discretionary spending.

*  The government is borrowing almost $.50 for every dollar spent.  Imagine if we as individuals were leveraging like this.

*  Social Security and Medicare are running out of money faster than forecasted.

*  Recently, a group of General Motors executives sold all of their shares for around $1.60 and up.  Look at what the price is today.  That points to what is going on behind the scenes and as the current CEO keeps suggesting, bankruptcy seems closer than around the corner.  

It is important that we keep our attention on the details versus the words coming out of Washington.  As I have reiterated several times in my blogs, there has to be a level of U. S. debt that when reached will lower our AAA credit rating. I don't know what that number is, but we are moving vigorously in that direction. Invest accordingly and follow your own truth.