According to several recent articles from well respected financial news organizations, such as bloomburg, Foreclosures DOUBLED in September.  (Read the article here.)

As always, the devil is in the details and I want to point out one little quote:  ``The truth of the matter is that borrowers are going into default as soon as they hit their adjustments,'' said Rick Sharga, executive vice president of marketing at Irvine, California-based RealtyTrac.

To understand why this is the real news in this story, you need to understand that we are only at the beginning of the Loan Reset cycle... which peaks in March of next year!  (source here)

Adjustable Rate Loan Resets For 2007–2008

Month           Millions
January-07      22
February-07     25
March-07        35
April-07        37
May-07          36
June-07         42
July-07         43
August-07       52
September-07    58
October-07      55
November-07     52
December-07     58
January-08      80
February-08     88
March-08        110
April-08        92
May-08          76
June-08         75
July-08         50
August-08       35
September-08    26
October-08      20
November-08     15
December-08     17

The current market is already being described as worse than the S&L disaster in the 1980's (see article here) and we aren't even at the peak yet. 

Of course, this means we will also see sharp rise in personal bankruptcy along with a contraction in consumer spending. 

Let's see how long it takes before we hear the "R" word.

Media Tidbit:
I'm currently digging UK phenom, Kate Nash.  Here is her hit (in the UK): FOUNDATIONS

01_-_foundations_128_lame_cbr

Kate Nash

Big+Dollar+Sign

I've written before that I believe that the governments inflation figures are pure malarkey.  I've also written that house prices in California are not supportable by working people's income....

Over at one of my favorite blogs, Dr Housing Bubble, he has posted a very thought provoking analysis (see it here) of the "Median California Family's" financial predicament and how they are virtually forced into debt.  Obviously, this is a recipe for disaster on many levels.  Certainly for the families that will eventually have to go bankrupt.  It's an even bigger disaster for our state... Debt slaves do not make good consumers because eventually they run out of credit.  With 2/3 of our nation's economy tied to consumer spending, it's easy to forecast the future.  If you think this can be contained to the California market, keep in mind that 1 of every 6 Americans lives in California.  SO goes Cali, so goes the USA.

Here's the part that really opened my eyes.  It is a median family budget (assuming median priced home, median priced vehicles, average credit card debt, median food and utility usage....).  Brace yourself and keep in mind that the MEDIAN HOUSEHOLD INCOME is under $65,000/yr in California (see below for more on that)

Monthly Budget for the "Average" Cali Family

Housing expense/PITI: $4,100 (Putting down $54,750 on $547,500 and using current jumbo rates on a $492,750.00 mortgage - 30 year fixed conventional financing)

Auto Loan Cost: $894 (2 cars with each carrying a $447 monthly loan).

Auto Insurance Cost: $160 (2 cars full coverage)

Fuel Cost: $300 (assuming that we only use $150 per vehicle)

Food Budget: $564

Dining Out: $200

College Support: $1,667 (Providing our kid $20,000 a year support to attend a 4 year private school)

Utilities: $120 (includes Gas, Electric, and basic phone service)

Credit Card Service Debt: $168 (According to Bankrate, average household credit card debt of $8,400)

Health care cost: $575 (Lower approximation for a family of four full coverage, according to The National Coalition on Health Care.)

Total Monthly Expenses: $8,748 or $104,976 annually.

This leaves the family with an annual deficit of about $40K!!!  I'm sure they can just roll that debt over at favorable rates, right?

By the way, curious how you stack up on income? 

The percent of US Households (in parentheses) that have annual household income over:

• $65,000 (34.72%)
• $80,000 (25.6%)
• $91,705 (20.0%)
• $100,000 (17.8%)
• $118,200 (10%)
• $166,200 (5%)
• $200,000 (2.67%)
• $250,000 (1.5%)
• $1,600,000 (0.12%)

Doubt my numbers?  Use the power of the internet and prove this wrong.  If I'm wrong, I'll post it!

Media Tidbit
Kendall is a performer out of Buffalo NY... He has some great stuff recorded and is currently touring.  You can visit his site at www.kendallshead.com - this is one of my favorite cuts from him.  It's called "God in Two Persons"

In Kendall's words:  "I did a cover version of Closer by NIN and God by Tori Amos a few years back. It is a piano/vocal version where the 2 songs overlap in the Coda. I really love the feel of it. It's mellow but my voice gets rough and kind of Rock-N-Roll."

GREAT COVER TUNE...   You can download it for free here.  Or stream it here:

Kendall - God In Two Persons

Kendall

1 comment

Well, it's been too long since I posted.

As you may recall, my friend Burton Orwig passed away.  I've been kind of blue about that and haven't felt like doing much.  I seem to be getting over it and now I'm hoping to be back on track.

When I last posted, I bragged how I had I traded my 2004 Mazda RX-8 (worth about $16K but with $14.5K debt) for a 2005 Chrysler Convertible (new debt $11K).  I'm hoping this will jump start my debt reduction by reducing the amount of debt on my balance sheet (3.5K) and freeing up some operating cash to accelerate my debt repayment.

It's only been a couple weeks, so I can't report much progress (yet).  However, I am thoroughly enjoying the PT Convertible!  It's not that exciting as a driver's car... in fact it sort of wallows on it's overly soft, floaty suspension... but it IS a convertible and I've found that I love, love, love to drive with the top down (and tunes playing!).  I'm feeling very positive about this purchase.

I continue to be obsessed with the financial news, which has been all horrifying!  The Sub-Prime Debt fiasco is causing major market volatility and it is very unclear how this will effect the US Economy.  In the past, I've been thinking we are headed to a debt crisis in America.  If anything, I think I may have underestimated how bad the situation could be.

The past 7 years have seen an unprecedented (debt-fueled) real estate binge.  I've been railing for several years that the fundamentals are out of whack, especially here in Southern California.  Prudent financial guidance has been been drowned out by the Real Estate and Mortgage marketing machine touting a house as a "sure bet" and "safe investment." 

Reality Check:
Amount $1 invested in stocks in 1963 would have compounded to today: $12.36
Amount $1 invested in real estate in 1963 would have compounded to today: $1.79

(That data is sourced from www.stopthesqueeze.com <= a wonderful anti-debt site!)

Now that the housing market is tanking, I'm hopeful.  May cooler heads prevail!

Enough of the "dismal science" of Economics... How about some Music!? 

Today's Media Tidbit
I love DJ Paul V's podcast, The Smash Mix.  It is sponsored by some radio station, but I bypass the station site and get the mix directly from DJ Paul's site (http://www.thesmashmix.com).  Here's his latest SmashMix:

DJPaulV_SmashMix118_8_3_07

DJ Paul V

Lately, I'm feeling very, very smart.  I've been highly skeptical of California Real Estate for several years.  I went so far as to sit out the market, which I believe to be overvalued.   Now, it's too soon to know if I'm right, but evidence is stacking up. 

Part of the reason I believe it is a bubble is the amazing "herd mentality" involved.  The topic of California Real Estate absolutely makes people nuts.  Rather than assessing it as "a purchase that you live in," people get all starry eyed as they count their future appreciation.  They never stop to ask if the price "makes sense" (maybe that should be cents!)

My hometown, Rochester NY, has sat out this insanity.  Their property values have risen in a way consistent with the historical mean.  When I talk to my sister or my friends back home, they are quite bemused by the insanity of the real estate boom in California.

But what has happened in California (and Florida, and Nevada, and Arizona....) is quite common in our history.  What we've lived through over the last few years is a classic bubble.  Learn more about bubbles and the related mania here.  The think to remember about bubbles is that they always end badly for those that get sucked in!

Like I said earlier, I'm feeling smart because the evidence is piling up, BIG TIME

Firstly, those that bought with the belief they "could not lose money" in real estate are still clueless and have no idea what they've signed on for... and when they figure out the reality of their debt slavery, they make decisions that would shock many... I'm not talking about bankruptcy but things much, much more drastic.

While so many are blindly keeping their head in the sand, foreclosures are becoming rampant and pricing reality is starting to catch up with people.  Many are resisting the inevitable and trying almost anything stay afloat, but it's not working.

It's important to note, that this bubble was created by cheap credit and now the "collateralized securities" markets are in free fall.  Any hope of new buyers propping up the market is gone because the banks have stopped making loans.

The question becomes, how bad will it get?

Personally, I'm planning to profit from all this... as I believe that anyone that is debt-free and has cash on hand in 2010 will have the world by a string!  I just hope I can turn my finances around in time! 

ENOUGH BUMMER TALK! 

Media Tidbit
in honor of the above post: Anxiety (Get Nervous) by Pat Benatar... gawd, she was great!

Pat Benatar - Anxiety (Get Nervous)

Pat Benatar

I got some interesting feed back from one of my readers... basically, he pointed out that seem be negative on a lot of things but I'm not presenting any solutions.  It's a fair point, so I'm going to try incorporate that into my future postings.

To back track, here are my preferred solutions to some issues I've covered.

Democratic Candidate for President:  I like John Edwards and Barack Obama almost equally.  The only thing skewing my opinion on this... those far right looney's are able to get a wingnut to do stupid stuff (look what they did to JFK!) and I think Obama would be a big target due to his race.   My ideal ticket would be Edwards (for Prez) and Obama (for VP).  I also really like Edwards populist economic positions, including his commitment to poverty reduction.

Real Estate Bubble:  I think we need to let the market it run it's course.  I am adamantly opposed to a "bail out" of people that foolishly signed on for mortgages they don't really understand on properties they overvalued.  It will be painful, but they won't be homeless... they will be renters.  And when prices drop to a more sustainable level (or wages catch up to house prices) - sellers will reappear.  Capitalism, while often painful, WORKS.  We are headed into some "creative destruction" but the pain will be temporary.

Illegal Immigration:  I favor amnesty for those here along with a military closure of our border with Mexico.  I think we need the low-end labor of unskilled Mexicans that are already here... but we also need to seal the border to prevent a terrorist attack.

My greatest disappointment is that our political class is so out of touch and therefore end up keeping the status quo.  We need campaign finance reform to correct their focus as they are too beholden to Corporate and larger donations to fund their election.  Suggestions anyone?

Obligatory MEDIA TIDBIT
In honor of the non-stop, 24/7 coverage of Paris Hilton (SKANK!)... I submit this cut from Amy Winehouse's earlier UK-only CD, FRANK.  Consider it commentary on Paris, it's titled "Fuck Me Pumps"

04-fuck_me_pumps_128_lame_cbr

Previously, I have posted my very strong belief that the Real Estate market is a bubble getting ready to pop.  It amazes me the depth the emotions this arouses in homeowners!

So, if you believe buying a house TODAY is a good idea, read no further and you will save yourself some heartburn!  You can skip ahead to the fun media tidbit (in RED, below)

Today's Real Estate News (Gathered via Patrick's Housing Bubble Site):

• Interest Rate Rise will Push Housing Market and US Economy to `Blood Bath'
• PMI states that they expect California and Florida House values to fall FOR TWO YEARS
  
• Coastal home prices expected to be hard hit with price collapse
• 2-year-old bill is about to come due for the Bay Area and the rest of California in the form of job losses triggered by the nose-dive in the housing market

 The breathless, surprised tone of these articles is amusing to me... we are witnessing the collapse of a classic, speculative bubble where assets are mortgaged on an intangible belief in "future value" - cheap credit makes this possible.  Check out this blog on the "Mess that Greenspan Made" to see how 18 years of cheap credit have set us up for a depression.

And just to head off the apologists that want to talk about how Cali is immune because of a housing shortage... well, predict the next batch of articles will show rents falling... due to a glut of condos for rent.  There is already plenty of anecdotal evidence that owners that haven't been able to sell their condos are renting them out.  Follow this link to  explode the myth with the simple statement:Too many empty houses

One final link... our own Orange County Register (usually a cheerleader for OC Real Estate) had this SHOCKING article: 

O.C. ranked near top for fall in home prices within 2 years

Sorry for the long e-mail, but I want to share some thoughts with you… as you may know, I’m a total news junkie and I have very strong opinions.  Below are some thoughts on Housing Prices... Job Creation in the US and Inflation (or the government statistics about inflation)

I probably read too much analysis, especially economic analysis.   I got interested in this stuff when I took a Macroeconomics class at Saddleback College several years ago.  Since that class, I read economic articles with a fresh set of eyes.  No longer were they dry lists of statistics, but they tell a story about the lives of ordinary people. 

Y’know, in a capitalist society, especial one with minimal safety nets (like ours), it pays to know what’s going on…. And lately it’s scary to read the writing on the wall (aka statistics).

Here’s an example: Many of you made fun of me when I didn’t by condo after breaking up with Kevin.  At the time, I felt (as I still do) that condos/homes in OC were wildly inflated and a bad housing value.

As I learned in Macroeconomics class, I ran the numbers and decided against buying.  The funny thing is, housing values continued to climb!  At times, I questioned my own decision to sit out…

The basic calculation that kept me from buying runs like this:  A loan for a 900 sq condo in South OC (approx $345,000) has a mortgage payment of approximately $2,800 a month… then I have to add property taxes, association fees and ownership expenses like PMI, Homeowners Insurance, upkeep…. it goes on and on.

What does it cost me to rent? Rental amount= $1255 for a one bedroom (900 sq feet) in Laguna Niguel.  I pay my own cable, electric and $25/month for water & trash.

Comparing apples to apples (Mortgage payment to rent, excluding other costs), renting will save me $1,545 per month (or $18,540 EACH Year)!  Remember, that is the difference between Mortgage payment vs. Rent… does not account for other expenses of ownership vs. renting. 

And for those of you that think the “mortgage deduction” helps via IRS Tax code… Please, do some research, because the mortgage credit does not even come close to making home-ownership profitable when compared to renting in the current climate.

Now, it seems like I may be right… housing is slumping…. 100% loans are virtually unavailable… Foreclosures are up by HUGE percentages.   Miami Fl, Denver Co, Las Vegas, Atlanta Ga, the Entire state of Ohio… all are in “housing value free-fall” due to massive overbuilding of condos and extensive ARM Mortgage resetting. 

Of course, lots of Californians think we are immune but California is starting to drop too.  Foreclosures in the 6 county Southern California district are up 260+% and forecasted to go MUCH, MUCH higher as so many people are in Adjustable rate mortgages that are just starting to re-set (causing payments to jump by as much as 40%).  For example, of the loans made in 2006, 83% of Mortgages in San Diego County were adjustable.  Those started reseting within the last several months.  Prior to this year, when the loans reset, people could sell for a profit or re-fi to a fixed rate.  In current conditions (flat or declingin values), those options are gone.  Regarding foreclosures, It's going to get much worse, before it gets better.

If you want to know where I get this info, here’s the Real Estate News Aggregator I follow regarding the US housing market: http://patrick.net/housing/crash.html

When I first started reading it, there were only a few articles that were supporting the crash assumption… now there are tons!  Be sure to visit that site, as it is an eye-opener!

But housing is just part of what concerns me…  I think the USA is headed for economic trouble that goes much, much deeper.

The entire growth of the US economy since 2000 has been tied to housing, construction and administration of debt.  Manufacturing jobs disappeared, but nobody was worried because we were all making a killing selling each other houses and brokering mortgages (both roles are commissioned and quite lucrative).

But what happens when the Construction Jobs, Real Estate Brokerage and Mortgage Industry employment collapse?  This is happening RIGHT NOW.  We don’t know how bad it could be… but there doesn't appear to be an industry poised to hire all those newly available people.

You know, the government unemployment figures seem low... that's because we stopped counting "discouraged" workers.  We only count those collecting unemployment. 

Here’s a scary thought: could the entire housing boom (2001 – 2006) be a manipulation of the money class to keep us from paying attention to the exportation of actual jobs that made things of value?  The economy tanked after 9/11, remember?  But we had cheap credit which meant everyone went and bought a car or got a home equity loan… all of which has funded record consumption (buying of stuff) rather than investment (building productive capacity). 

All that activity prevented a recession through artificial means.  Even the tech bubble of the 90’s created real value… things…. Companies… that boom was more “real” that this Housing Bubble.  We should call the economy of 2000-2007 the “Bull Sh*t economy” since so little was actually created.

Perhaps, it was the only way Dubya (and his merry band of corporate profiteering thieves) could keep the American populace docile… give us the illusion of prosperity.  I predict they will do almost anything to prop the markets up until the last quarter of Dubya’s presidency. 

Why would they do this?  Well, their corporate cronies are making a killing… and the next president is going to be, gasp, NON-REPUBLICAN.   A Recession would be nice housewarming present for the new occupant of the white house, don’t you agree?

Is there a coming recession?  It looks like it… the sub prime and alt-a mortgage markets have pulled back … foreclosures are up… Mortgage Companies went down in flames (just like the Savings & Loans of 1980’s), homebuilders are in distress...  Internationally, interest rates are climbing by the day and other countries are dropping the dollar in favor of the Euro denominated securities (which means they believe the dollar is losing value). 

Heck, the Canadian Dollar is almost equal with the US dollar for the first time since the early 1980’s (there’s a clue!).

The question becomes: Is it 1980 or 1929? 

Whether it’s ’29 or ’80, trouble lies ahead.  By trouble, I mean financial pain ahead for everyone… the only difference is a degree of pain (recession vs. depression).  We could be looking at the dawn of a period of market crashes: Real estate (goodbye home equity!), Stock (goodbye 401K).

What scares me: could it be on purpose?

Here’s a scary libertarian blog from the UK that postulates the US economy is being plundered by the plutocracy / Oligarchy.  He predicts: “Global Liquidity Crisis when the Credit Boom comes to an End.”  Read it at: http://www.marketoracle.co.uk/Article1204.html

He believes Bush, Cheney & Co have engineered this for the express purpose of destroying the american middle class.  I wish that I found that far-fetched, but I do not.

He’s another economic concept for you: INFLATION.  The CPI is a government statistic that supposedly tracks inflation so wages can be adjusted.  But over the last several years, the “official” government figures on inflation have been very low. 

Think anecdotally… do you believe inflation is low?   Hmm… housing up over 100% in Most Urban Areas… Energy prices way up… Of course, imported Chinese goods have pushed down the prices of electronics, clothing and house wares (while destroying domestic manufacturers of those same items). 

Is inflation low?  Nope.  The Government changed how they calculate inflation. 

In just the past several years, gasoline has gone up almost 100% . . . utility costs are up 50%-125% nationwide . . . health insurance is up 60%+ . . . and grocery bills are up over 30%.

So how can inflation be just the 2% or 3% that the Government claims when they release their numbers?

The Government's CPI no longer includes the soaring costs of energy and food.  Therefore, the number they release is a totally bogus number they get by cutting out energy and food costs.

Have you ever met an American, or any human being, who could live without food or energy? The Fed pretends it is cutting out the heart and core of inflation by cutting out food and energy because these are "variable." But, of course, all prices are variable and this variability is the very reason one wants to keep measuring them: if they were not variable, it would be absurd to measure them more than one time.

No question… the lies are piling up, Big TIME!  And not just lies about Iraq, but the US Economy.  Elections are coming… Pay attention and you’ll hear NO ONE in the major parties talking much about any of the economics. 

Dude, where’s my democracy with its "informed" electorate?  When did we become an oligarchy?  Was there a coup d’etat that I missed?   I want my country back!

I just hope it’s not too late!

Thanks for reading!  Comments/Discussion/Opinions welcome….

BONUS MEDIA TIDBIT:

This is a MASH of Dubya annoying vocalizations set to music.  The man is trapped by his own words!  Cool cover art too.  Check it out.

Colatron6daywar

Six_Day_War