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Daily Digest - Dec 26

Friday, December 26, 2008, 9:29 AM
  • 10 worst real-estate markets for 2009 
  • Real Personal Consumption Expenditure by Category (Chat)
  • Home prices may rise on mortgage refinancing boom 
  • In spite of stricter laws, metro-east bankruptcy filings rise
  • Wall St Santa rally small comfort after grim year
  • Worst predictions of 2008
  • Retail sales plummet (worst on record)   

Economy

10 worst real-estate markets for 2009 

The housing market hasn't bottomed out yet. For the third quarter, the closely-watched S&P Case-Shiller national home-price index fell 16.6%, and experts are predicting further declines. Of the top 100 markets, here are 10 with the worst forecasts. 

Real Personal Consumption Expenditure by Category (Chat)

Home prices may rise on mortgage refinancing boom 

(Reuters) - Veteran banking analyst Richard Bove said he expects housing prices in the United States to stabilize and/or rise after a likely boom in mortgage refinance, as mortgage rates fall and loan applications increase. 
"It is quite likely that the country is about to enter a new mortgage refinance boom," the Ladenburg Thalmann analyst wrote in a note to clients.

"The Treasury and the Federal Reserve have created an environment which makes this development almost impossible to avoid," Bove said.

The take over of Fannie Mae and Freddie Mac in September, as well as Fed's plan last month to buy up to $600 billion in "agency" securities issued by Fannie, Freddie, Ginnie Mae and the Federal Home Loan Bank system have had "dramatic results," Bove said.

Mortgage rates have begun to tumble, while mortgage applications are picking up, he said. Banks are also rehiring the mortgage loan personnel they recently fired, Bove added.

On Wednesday, data from an industry group showed that U.S. mortgage applications had surged to the highest level in over five years in the latest week, as potential borrowers came out in droves to refinance after government interventions that helped push interest rates down to record lows. 

In spite of stricter laws, metro-east bankruptcy filings rise 

The past five years have not gone according to plan for the Wilke family. 

"I would have never thought this would be somewhere we would have to be," said Debra Wilke.
She and her husband have lived in their Belleville home for almost 20 years, raised two sons and had saved for retirement. But about five years ago, her husband lost his job when his employer cut his shift. He then suffered two transient ischemic attacks, often referred to as "TIAs" or mini-strokes, and couldn't work for a few months. Their oldest son lost a good-paying job.

The couple was losing their grasp on the once financially stable life they had built for their family. Medical bills piled up, and Debra had to empty her IRA to pay for them. When her husband returned to work, it was at a job that paid about half his previous position.

"It's just snowballed," Wilke said. "Every year, it got a little tighter, and a little tighter, and a little tighter."
Last month, the couple made a difficult decision and filed for bankruptcy. And they are not alone.
Many like them generally are not irresponsible people. They are people who want to pay their bills, but don't have the resources after a life-changing event.

In November, 100,000 U.S. consumers filed for personal bankruptcy. More than 32 percent of them filed under Chapter 13, which allows debtors to restructure and repay creditors over 36 to 60 months. That's slightly fewer than the total filings recorded in October but more than 39 percent higher than the number reported in November 2007. 

 Wall St Santa rally small comfort after grim year 

Wall Street entered the Christmas holiday in subdued mood on Wednesday, posting a modest Santa Claus rally, as investors digested more gloomy data on the economy and, with just four trading days left in 2008, began to take stock of a torrid year. 

The crisis that started in the US subprime mortgage market spread this year to become a global economic and financial disaster. Governments around the world were forced to bailout some of the most recognisable names in the financial world as the credit markets seized-up and several high-profile companies including Bear Stearns and Lehman Brothers disappeared into history.

The S&P is down more than 40 per cent so far this year, its worst fall since the Great Depression. Most analysts expect that the more than year-long recession will get worse before it gets better and investors are bracing themselves for more pain in 2009.

Bright spots have been few and far between. Even the consumer staples sector is down by almost a fifth this year.

The Worst Predictions About 2008

Here are some of the worst predictions that were made about 2008. Savor them—a crop like this doesn't come along every year.

1. "A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008

At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500.

2. AIG (AIG) "could have huge gains in the second quarter." —Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008

AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.

3. "I think this is a case where Freddie Mac (FRE) and Fannie Mae (FNM) are fundamentally sound. They're not in danger of going under…I think they are in good shape going forward." —Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008

Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.

Retail Sales Plummet

Price-slashing failed to rescue a bleak holiday season for beleaguered retailers, as sales plunged across most categories on shrinking consumer spending, according to new data released Thursday.

Despite a flurry of last-minute shoppers lured by the deep discounts, total retail sales, excluding automobiles, fell over the year-earlier period by 5.5% in November and 8% in December through Christmas Eve, according to MasterCard Inc.'s SpendingPulse unit.

When gasoline sales are excluded, the fall in overall retail sales is more modest: a 2.5% drop in November and a 4% decline in December. A 40% drop in gasoline prices over the year-earlier period contributed to the sharp decline in total sales.

But considering individual sectors, "This will go down as the one of the worst holiday sales seasons on record," said Mary Delk, a director in the retail practice at consulting firm Deloitte LLP. "Retailers went from 'Ho-ho' to 'Uh-oh' to 'Oh-no.'"

Retail_Sales_Plummet.gif

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7 Comments

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: Profits Dropping

This is a two sided sword that is cutting in both directions. The pressure to combat sagging sales led to price cutting, which will reduce profits. As financial reports begin to be made public, I suspect the profit loss will greatly outweigh the dip in sales.  

Davos's picture
Davos
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Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 26

Cartoon Stu Rees

Damnthematrix's picture
Damnthematrix
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Re: Daily Digest - Dec 26

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3870089/Protectionist-dominoes-are-beginning-to-tumble-across-the-world.html

Protectionist dominoes are beginning to tumble across the world

The riots have begun. Civil protest is breaking out in cities across Russia, China, and beyond.

This is a foretaste of what the world
may face as the "crisis of capitalism" - another Marxist phase making a
comeback - starts to turn two hundred million lives upside down.

We are advancing to the political stage
of this global train wreck. Regimes are being tested. Those relying on
perma-boom to mask a lack of democratic or ancestral legitimacy may try
to gain time by the usual methods: trade barriers, sabre-rattling, and barbed wire.

Dominique Strauss-Kahn, the head of the
International Monetary Fund, is worried enough to ditch a half-century
of IMF orthodoxy, calling for a fiscal boost worth 2pc of world GDP to
"prevent global depression".

"If we are not able to do that, then
social unrest may happen in many countries, including advanced
economies. We are facing an unprecedented decline in output. All around
the planet, the people have reacted with feelings going from surprise
to anger, and from anger to fear," he said.

Russia has begun to shut down trade as
it adjusts to the shock of Urals oil below $40 a barrel. It has imposed
import tariffs of 30pc on cars, 15pc on farm kit, and 95pc on poultry
(above quota levels). "It is possible during the financial crisis to
support domestic producers by raising customs duties," said Premier
Vladimir Putin.

Russia is not alone. India and Vietnam
have imposed steel tariffs. Indonesia is resorting to special
"licences" to choke off imports.

The Kremlin is alarmed by a 13pc fall in
industrial output over the last five months. There have been street
protests in Moscow, St Petersburg, Kaliningrad, Vladivostok and
Barnaul. Police crushed "Dissent Marchers" holding copies of Russia's
constitution above their heads in Moscow's Triumfalnaya Square.

"Russia has not seen anything like these
nationwide protests before," said Boris Kagarlitsky from Moscow's
Globalization Institute.

The Duma is widening the treason law to
catch most forms of political dissent, and unwelcome forms of
journalism. Jury trials for state crimes are to be abolished.

Yevgeny Kiseloyov at the Moscow Times said it feels eerily like December 1 1934 when Stalin unveiled his "Enemies of the People" law, kicking off the Great Terror.

The omens are not good in China either.
Taxis are being bugged by state police. The great unknown is how
Beijing will respond as its state-directed export strategy hits a brick
wall, leaving exposed a vast eyesore of concrete and excess plant.

Exports fell 2.2pc in November. Toy,
textile, footwear, and furniture plants are being closed across
Guangdong, now the riot hub of South China. Some 40m Chinese workers
are expected to lose their jobs. Party officials have warned of
"mass-scale social turmoil".

The Politburo is giving mixed signals.
We don't yet know how much of the country's plan to boost domestic
demand through a $586bn stimulus package is real, and how much is a
wish-list sent to party bosses in the hinterland without funding.

Shortly after President Hu Jintao said
China is "losing competitive edge in the world market", we saw a move
towards export subsidies for the steel industry and a dip in the yuan
peg - even though China already has the world's biggest reserves ($2
trillion) and the biggest trade surplus ($40bn a month).

So is the Communist Party mulling a 1930s "beggar-thy-neighbour"
strategy of devaluation to export its way out of trouble? Such raw
mercantilism can only draw a sharp retort from Washington and Brussels
in this climate.

"During a global slowdown, you can't
have countries trying to take advantage of others by manipulating their
currencies," said Frank Vargo from the US National Association of
Manufacturers.

It is a view shared entirely by President-elect
Barack Obama. "China must change its currency practices. Because it
pegs its currency at an artificially low rate, China is running massive
current account surpluses. This is not good for American firms and
workers, not good for the world," he said in October. The new intake of
radical Democrats on Capitol Hill will hold him to it.

There has been much talk lately of
America's Smoot-Hawley Tariff Act, which set off the protectionist
dominoes in 1930. It is usually invoked by free traders to make the
wrong point. The relevant message of Smoot-Hawley is that America was
then the big exporter, playing the China role. By resorting to tariffs,
it set off retaliation, and was the biggest victim of its own folly.

Britain and the Dominions retreated into
Imperial Preference. Other countries joined. This became the "growth
bloc" of the 1930s, free from the deflation constraints of the Gold
Standard. High tariffs stopped the stimulus leaking out.

It was a successful strategy - given the
awful alternatives - and was the key reason why Britain's economy
contracted by just 5pc during the Depression, against 15pc for France,
and 30pc for the US.

Could we see such a closed "growth bloc"
emerging now, this time led by the US, entailing a massive rupture of
world's trading system? Perhaps.

This crisis has already brought us a
monetary revolution as interest rates approach zero across the G10. It
may overturn the "New World Order" as well, unless we move with great
care in grim months ahead. This is where events turn dangerous.

The last great era of globalisation peaked just before 1914. You know the rest of the story.

switters's picture
switters
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Posts: 744
Re: Daily Digest - Dec 26

I really wonder what's going to happen in the real estate market.  Sure, mortgage rates are dropping fast and that's a powerful incentive to buy.  But people are scared - really scared - right now and I wonder if they'll be so quick to take on a big new debt when renting is still much cheaper than owning in many markets and folks are worried about the security of their jobs.

Are we headed for another housing bubble?  Can we really be that stupid?  Sadly, I think I know the answer to that last question.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 26

Hello Chris K:

I really have wonders about them re-inflating it. I read today that they require:

  1.  20% equity
  2. Mortgage debt ratio of 45% or higher
  3. Docs
  4. and a credit score of 700 or better
  5. 45-56% of purchases are distressed (tanking prices)
  6. Distressed sales make new sales tough/impossible
I read a few months ago that: 
  1. There are 18 million vacant homes
  2. There are 4.5 million homes on market/11 month inventory

 

switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Re: Daily Digest - Dec 26
Davos wrote:

Hello Chris K:

I really have wonders about them re-inflating it. I read today that they require:

  1.  20% equity
  2. Mortgage debt ratio of 45% or higher
  3. Docs
  4. and a credit score of 700 or better
  5. 45-56% of purchases are distressed (tanking prices)
  6. Distressed sales make new sales tough/impossible
I read a few months ago that: 
  1. There are 18 million vacant homes
  2. There are 4.5 million homes on market/11 month inventory

 

Check out these recent stats from the Mortgage Bankers Association:

  • For the week ending Dec. 19th, the application index surged 48 percent to 1245.5, the highest level since 2003.
  • Refinance volume grew nearly 63 percent, while purchase volume rose 18 percent.

However, 80 percent of these applications came from refinancing.  We're not seeing a lot of new buyers, but nevertheless the declining mortgage rates are having an effect.

I can't imagine many buyers would qualify for a mortgage now, as you pointed out.  But 20% of that surge was indeed due to new mortgage applications. 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 26

Hello Chris K:

I wasn't aware that it was even close to 18%. Take care 

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