Blog

Daily Digest - Dec 9

Tuesday, December 9, 2008, 7:56 AM

Demise of the middle class,  CSFB forecasts more than 8 million foreclosures, November job losses analyzed, pending home sales expected to drop, Big Three nationalized, Chicago workers continue their sit-in.

Economy

The Demise of the Middle Class 

Desperation and necessity

The struggles of the American middle-class since 1970 become very clear when looking at the next two charts. Their buying power has plunged when you factor in the massive loss of buying power of the US dollar. Over this 35+ year period, both spouses were forced into the workplace to keep the family afloat. It also explains the massive growth in consumer debt and lack of personal savings. The middle-class was not necessarily acting irresponsibly. It was acting out of desperation and necessity.

Clearly many in the middle-class (and elsewhere) have added debt too recklessly. But prices have inexorably grown faster, year after year, than the growth of real middle-class income. In addition fixed costs for the American family (mortgage costs, insurance, child care, health care, etc.) are much higher as a percentage of income than they were 35 years ago.

Credit Suisse Forecast: 8.1 million foreclosures by 2012 

In a research note titled "Foreclosure Update: over 8 million foreclosures expected" (no link, hat tip Frank) updated last week, Credit Suisse analysts are now forecasting 8.1 million homes will be in foreclosure by the end of 2012, representing 16% of all households with mortgages.

The analysts projected this could be as low as 6.3 million in a mild recession, with a somewhat successful loan modification program (re-default rates at around 40%), and as high as 10.2 million in a more severe recession. Note: the Comptroller of the Currency John C. Dugan noted this morning that re-defaults rates appear to be well in excess of 50% for recent mods, much higher than the hoped for 40%.

What really stood out in the forecast was the shift from mostly subprime foreclosures to non-subprime (Alt-A and Prime) foreclosures. This fits with some of the housing themes we've been discussing - that foreclosures will now be moving up the price chain.

November jobs 

It is true that a loss of 530,000 jobs is, in the grand scheme, not the end.

But -- compounded with large downward revisions for September and October as well -- the employment picture is going from gray to black with a speed reminiscent only of a full-fledged depression.

 

Preview: Pending Home Sales to Confirm Fourth-Quarter Gloom 

October and November were two of the worst months in the U.S. recession that began in December 2007, so as more data continues to pile in, it should come as no surprise that markets have low expectations for the results. Tuesday's look at the housing sector will be no exception when an industry group releases the October data for pending home sales.

Pending U.S. home sales, which represent housing purchases that have been signed but not finalized, are looked at to gauge how existing home sales will perform in the following month.

After declining by 4.6% in September, pending sales are expected to set to begin the fourth quarter with another 3.0% drop-off in October. Some economists are expecting even worse.

"The reality is that we're in the worse part of the recession," said Brian Bethune, chief U.S. financial economist at IHS Global Insight.

Stock markets were volatile, asset-backed markets froze up, and credit tightened during the month, so a drop in the pending home sales index will hardly be a shock, he added.

Bethune's forecast is for an 8% drop, a much bigger decline than the consensus expectation. Yet, he said markets have given up all hope on fourth-quarter data, so the index won't be looked at closely and markets are unlikely to move on the data. 

Nationalization!!! 

Under terms of the draft legislation, which continued to evolve Monday evening, the government would receive warrants for stock equivalent to at least 20% of the loans any company receives. The company also would have to agree to limits on executive compensation and dividend payments, much like those contained in the government's $700 billion rescue of the financial industry. 

Day 4: Workers Remain In Shuttered Plan 

CHICAGO (CBS) - Chicago window factory workers in the fourth day of a sit-in at their former workplace, Republic Windows and Doors factory are meeting Monday with politicians, company owners and bank officials to resolve the standoff. Gov. Rod Blagojevich ordered the state to suspend business with the bank that pulled the factory's line of credit. CBS 2's Mai Martinez was there.

The company shut down abruptly on Friday after Bank of America canceled its line of credit due to a sharp downturn in Republic's business.

The laid-off workers continue to guard the assets inside their Goose Island plant in around the clock shifts to make sure the items are not removed. They say the remaining doors, windows, and machinery are the only collateral they have left in their fight to get what they feel they are owed.

Endorsed Financial Adviser Endorsed Financial Adviser

Looking for a financial adviser who sees the world through a similar lens as we do? Free consultation available.

Learn More »
Read Our New Book "Prosper!"Read Our New Book

Prosper! is a "how to" guide for living well no matter what the future brings.

Learn More »

 

Related content

3 Comments

ozzybeef's picture
ozzybeef
Status: Member (Offline)
Joined: May 2 2008
Posts: 4
Re: Daily Digest - Dec 9

Gov. Rod Blagojevich was on the news last night supporting these workers.

 This morning he is in prison on federal corruption charges:

http://www.foxnews.com/politics/2008/12/09/report-illinois-governor-take...

Its about time they nail this joker.

I hope they can work things out for this company so that they can get back in business.

Roysyl's picture
Roysyl
Status: Member (Offline)
Joined: Mar 21 2008
Posts: 6
Re: Daily Digest - Dec 9

 

   I think he has been "Spitzered".

kemosavvy's picture
kemosavvy
Status: Martenson Brigade Member (Offline)
Joined: Oct 13 2008
Posts: 254
Re: Daily Digest - Dec 9

 

check out this short information packed article that ran in the latest edition of businessweek, the website also contains a VIDEO which pretty much summarizes the article.

http://www.businessweek.com/magazine/content/08_50/b4112012007284.htm?chan=magazine+channel_the+business+week

this guy's column is a must for me every week. other than that this magazine is rubbish, 'the economist' is far superior.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments