The Market Ticker

It just never ends, does it?

Market manipulation?  Intentionally withholding information?  No problem.

Here we are again:

It's about damn time.

April 8 (Bloomberg) -- A congressional panel overseeing the U.S. financial rescue suggested that getting rid of top executives and liquidating problem banks may be a better way to solve the economic crisis.

Yep.

Elizabeth Warren deserves congratulations for maintaining independence and calling it as she sees it.  Specifically:

In the report, Warren’s panel said “it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth.”

Exactly, as I and others have said for more than two years.

The bottom line here folks is that there is no evidence that these "distressed assets" are distressed simply because of liquidity concerns.  In fact no matter where you look you will find evidence - and lots of it - that these valuations in the marketplace overstate true value, as investors such as Wilbur Ross who looked like geniuses buying early at those "distressed" prices have seen their investments deteriorate further - in some cases, a lot further.

Not only that, but the "stress tests" that Treasury are using, specifically their "severe" scenario, is nothing of the kind.  Their so-called "severe" scenario only anticipates 10% unemployment, while we're beyond that if you look at broad form unemployment already (U-6) - in fact, well beyond it.

The problem with using "narrower" reported numbers is that it fails to "count" a lot of people who can't pay bills any more (due to being unemployed), along with a lot of people who are severely constrained in their ability to pay as agreed (those forced into part-time jobs where benefits and pay are severely curtailed.)

As I have also repeatedly said for more than two years, the problem is too much debt, at the core.  That is, business, household and government - all have too much debt for their income.

The solution?  It's right here:

Still, it said a bank liquidation would be “least likely to sap the patience of taxpayers” and “provides clarity relatively quickly” to the markets.

It also takes a large step toward fixing the problem, which none of the other alternatives do.

Wake up America.

PS: The full document is here - it's long and detailed - and worth a read.

Pulte "agreed" to buy Centex this morning in an all-stock deal.

Bloomberg, at least, gets the basic issue right in their headline, calling it a "survival bid."

It is.

By combining the two firms it will allow them to amass their cash together as well as firing excess workers and paring down construction rates.

This is a good thing overall, as we still have vastly too much capacity in the homebuilding space as well as too many houses being built - even through they're not selling.

But is this a positive overall for the market?  Temporarily, sure.  Big deals are always positive simply on psychological factors.

But in the main?  Not so much.  This is certainly part of the solution - capacity reduction - but in terms of turning around a deeply red premarket futures situation this is something to be enjoyed rather than something to be looked upon as a marker of "a bottom."

This is more like two guys who jump out of an airplane and discover on the way down they have a harness and a couple of bedsheets, and if they stick together and are lucky they can cobble together one makeshift parachute.

We'll see if it opens.

If you have any qualms about the morality of intentionally defaulting on your mortgage - not because you can't pay, but because the value of your house has declined to less than you owe, listen up:

“I can make the payments. That’s not the issue. It’s a business decision,” Watts said. “I tried to work with the lender. The lender didn’t help. They said, go ahead, do a short sale. It’s strictly business.”

Who is this guy?  He is not Joe. K. Random.

Watts, the chief prognosticator for the Orange County Association of Realtors, once was one of local real estate’s biggest boosters. Where others saw a market slump, Watts kept seeing price gains.

Got it?

Good.

It's strictly business folks.

The banks, Realtors and mortgage brokers didn't pump real estate, stoking the fires of starry-eyed profits, for your benefit.  It was not so your children would have a nice place to grow up.  It was not so you and your wife, husband or significant other would have a great place to live.

Nope.

It was strictly business.

That's right.  Every nickel of profit that those Realtors, Banksters and Brokesters could manage to connive out of your pocketbook, they did.  They issued rosy predictions like this:

• In 2006, Watts forecast a 15% price jump. Instead, sales dropped 28% and prices rose a meager 2.4%.
• In 2007, Watts predicted that local house prices would increase 7%. Following the subprime mortgage meltdown, and prices ended the year down 10%.
• In 2008, he thought gains of 3-5% were conceivable for houses. By year’s end, the whole economy had tanked, and Watts had issued an apology. Home prices fell 30%.

Yeah, he apologized, but you lost money.

This is not one random guy either.  Remember these books?

Google him. 

Look, I understand "it's just business." 

I'm a capitalist pig and I'm proud of it.

But back in the day of The Internet, I had plenty of cover to prognosticate 500% annual growth rates for the next 20 years if I wanted to.  Everyone else was.

I refused, because I knew that mathematically such a prognostication was dishonest.

It is rather clear that anyone who bothered to do the math on home price appreciation and compare it against income had to know that too, on a forward basis for any material length of time, was impossible to maintain.

I understand that this realization ultimately included you, the Home Buyer - if you bothered to do the math (and you should have.)

But the Brokester and Bankster made those loans knowing this as well, and they're the subject matter experts, with their HP12Cs and fancy computer programs.  They all had to know, if they bothered to look (and they had a duty to look, at least for the buyers of their "debt instruments") that the loans they were writing and the "affordability products" both weren't affordable and those loans had a high probability of exploding.

It's simply math.

So consider what Mr. Watts did.

Make a business decision, and only a business decision.

Do not allow yourself to be guilted by people like Sheila Bair of the FDIC or others, all of whom in the government also knew the math, into intentionally screwing yourself when in point of fact you should do what makes the best business sense for you and your family.

We cannot, ladies and gentlemen, get to the bottom of this economic morass until the excessive debt is flushed from the economy.  This means that it must be paid down or defaulted.

The market must clear this excessive debt in households, corporations and even government.

All the whining from government about the "horrible" effects of foreclosure on neighboring property (the value decreases) is in fact backward.  In order to return to sustainable home ownership we must get home prices down to 2.5-3x incomes on a median basis.  The sooner we do, the sooner we achieve sustainable home ownership.  True home ownership.

So while it sounds twisted, intentional defaults, where it is a proper business decision on your part and made in consultation with your own experts, help this process along.

The government is heavily invested in seeing the banks get the better end of this situation (of their own making!) even if it impoverishes you in the process.

Only you, in consultation with an attorney and CPA, can make a business decision on whether to attempt to renegotiate and/or walk away - that is, what the best business decision is for you - and only you.

Make that decision not based on the bleating claims of morality among those who either intentionally misled you or sat silently while firms and individuals over whom they had regulatory authority did so, but rather strictly as a business decision.

After all - they both did a few years ago and are again - here and now - today.