RANDOM MUSINGS V
by Sol Palha

February 13, 2007

The trouble with being in the rat race is that even if you win, you’re still a rat.

Lily Tomlin

Housing problems 

Another ominous warning sign that the housing meltdown has only begun and not ended is the huge drop in the practise of taking home equity loans. This is how most of the masses have been leading their lofty lifestyles and buying stuff with money they don’t really have. Now that house prices are falling they are running scared and the worst part is that their bill has actually increased significantly. To put things into perspective there was 52% drop in home equity loans in the 3^rd quarter; total withdrawals slid from 235.9 billion in the 3^rd quarter of 2005 to 113.5 billion in the 3^rd quarter of 2006. Expect this to drop even more by the end of this quarter. Things are not getting better as the press and top economists would have you believe they are actually getting worse. However one should expect a mini rally in housing as the masses are all starting to get a bit nervous and as we all know the masses are never right. Thus mass psychology dictates that this sector will experience some sort of boost and this is already taking place. 

Late Mortgage payments and housing bust 

According to the Mortgage bankers association (MBA) late payments and foreclosures rose in the 3^rd quarter and this trend is expected to continue as a huge number of adjustable mortgages reset in the next couple of months. When these mortgages reset the monthly payments are going to go up significantly; to make matters worse those that have already fallen behind will pay even higher rates because their credit rating has already fallen. Expect the number of foreclosures to increase substantially next year; foreclosure rates could hit new 3-6 year highs. The biggest increases will be in the former red hot markets of Florida, New York, Arizona, California, etc. Our advice for over 2 years for those who had more then one home was to sell one or more; risk takers were advised to sell their existing homes and rent. The MBA predicts that a whopping 1.1 to 1.5 trillion worth of loans will reset next year; 700 million of this amount will be refinanced and up to 800 million will adjust at less affordable rates. The fireworks are going to begin sometime next year.

The story below quite nicely illustrates the dire situation of the housing market something we have been warning our subscriber now for over 2 years 

Florida's overbuilt condo market starts to fizzle

MIAMI (Reuters) - On a piece of prime bayfront property near downtown Miami, weeds climb the steps of the sales office for Onyx 2, a planned waterview condo where apartments were to sell for $500,000 to $2,000,000. City officials say 15 condo projects, representing nearly 1,900 units, have been officially pulled from the waning market. But analysts say the numbers are much higher when you consider the rest of Florida's overbuilt condo market.

But the "for sale" signs are not the only warnings of a fading market. Statewide sales of existing condos dropped 31 percent in October from the same month last year, according to the Florida Association of Realtors. Median prices fell 2 percent. In  Fort Lauderdale, sales dropped 21 percent in October. The seller of a  Miami Beach waterfront one-bedroom dropped his asking price from $445,000 to $400,000 to $370,000 in a matter of weeks. Full Story

Inflation

The big theme now is to state inflation is under control but that’s one of the biggest lies out there. Note how the so called soft commodities have exploded in price (grains, sugar, coffee etc); these markets are the last to take off but when they do there can be no doubt that inflation is starting to run and all it takes is a small push in the right direction for it to run wild.

Economists had been expecting a rebound in wholesale prices following two months of big declines. However, the 2 percent jump was four times bigger than the 0.5 percent increase they had forecast. Even excluding volatile energy and food prices, core inflation posted a 1.3 percent advance, the biggest jump in 26 years. Full Story  

The above story clearly illustrates that inflation is not in check and that the press and the top economists are either consuming large quantities of mind altering drugs or they are completely asleep at the wheel. 

Make the world a better place for others 

We are told very often to make the world a better place for others; this once again is total nonsense and actually falls under the secret programmed desire to lose category. Let’s examine this premise closely.

Would it not be better to just tell us to make it a better place for ourselves first? If you have no idea what’s good for you how could you go about making it a better place for others. Hence the logical place to begin is with oneself and then after that move to the next step and start to look out for the interests of others. It’s for this reason the world is such a crazy place because individuals are trying to follow society’s instructions but have no idea on how to really proceed. This premise is absurd it’s almost like telling someone that they should not go to school to learn how to become a car mechanic. Instead they should learn how to fix them by offering to help outsiders who have problems with their cars; the end result as expected would be that either the car blows up or the performance drops by factor of 10.

Thus begin the New Year by focusing on yourself. As we have stated many times in the past its good to be selfish to some degree because if you don’t know how to love yourself then why should any one even bother to attempt to do something you have failed so miserably in doing.

GM’s woes 

It’s truly amazing but it appears that over the last 10 years GM has not been able to make money selling cars. Thus one wonders what the hell they are doing in this business; to make matter worse their profits have plunged in excess of 45% in the same time period. Its total liabilities have grown from some 200 billion to some 450 billion. How can they ever expect to pay these liabilities down when they gross profits in 2006 were 22 billion dollars. At some point in time something is going to have to give; expect the workers who are depending on their pension and medical benefits to get a huge surprise in the not to distant future. The other U.S auto manufacturers are in just as much trouble. We stated a long time ago that the only way they could ever compete with the Asians was to completely close shop and move overseas or the other possibility is to hire non union workers. However their pension and medical insurance liabilities are so large now that they need to get the cheapest labour possible and one that does not require too many benefits. Such a scenario is only available in Asia.

Montana sues  Wyoming over water rights

BILLINGS, Mont. -  Montana sued Wyoming in the U.S. Supreme Court on Thursday over water rights in two shared rivers, which Montana claims are running dry due to Wyoming's overuse. The lawsuit over the Tongue and Powder rivers, which flow from north-eastern Wyoming into south-eastern Montana, marks a sharp escalation in the water fight between the states. The lawsuit alleges Wyoming is ignoring Montana's "senior" water rights by taking more water from the rivers than allowed under the 1950 Yellowstone River Compact. That includes water diverted and stored for irrigation and ground water pumped from beneath the surface during coal-bed methane production.

"We're running out of water," said Montana Gov. Brian Schweitzer. "It's getting worse every year as Wyoming is using more and more water our farmers and ranchers who depend on this water for irrigation are having difficulty raising their crops." Full Story

This is the beginning of the water problem we spoke about several times in the past. Water is going to be even more precious then oil one day as there is simply not enough clean water around for everyone. First it will start of with simple arguments but ultimately these arguments will result in a war and hence we now going to coin a new phrase “the coming water wars”. 

Retiring Baby Boomers Saving at Lowest Rate since the Great Depression

WASHINGTON (AP) -- People are saving at the lowest level since the Great Depression, and that could be a problem for the millions of baby boomers getting ready to retire.

In fact, the Commerce Department reported Thursday that the nation's personal savings rate for all of 2006 was a negative 1 percent, the worst showing in 73 years

The negative rate means people are spending all of the money they have left after paying taxes -- and then some. They are dipping into savings or increasing their borrowing to finance current spending. Full Story 

The Chinese save up to 35% of their income and Americans well they hardly save anything as indicated from the story above. In fact the nations saving’s rate as whole entered negative territory in 2006. What is even more amazing is that debtor nations as a whole of which America is the largest continue to pile on new amounts of debt, while creditor nations such as China, India, Japan etc continue to save even more. Were the issue at hand not so serious we would be tempted to laugh at this situation, debtors should be cutting down their debt and creditors should be technically spending more. Instead it appears that the opposite is true. When the ceiling drops it’s going to be ugly for a lot. Indeed already so many people are feeling the pinch and still they do nothing to curb their silly stupid mindless desire to pile on more debt. This brings to mind the famous saying “those who do not learn from history are doomed to repeat it” to which we would like to add “with double the interest”. 

Note our Adult index is a clear indicator of how bad things are and how much worse they are going to get in the coming years. It has put in yet another high this month and it shows no signs of letting down. 

If worry were an effective weight-loss program, women would be invisible.

Nancy Drew