By now we are all aware of the 1st wave...the housing speculators going "bust" and very well aware of the 2nd wave...the subprime borrowers going tango-uniform in such grand style.
Anyone watching the 3rd wave yet? These are the main-stream homeowners. "Safe" borrowers with sound credit and boring/conservative fixed-rate mortgages. HUH?
- For the first time these homeowners account for the largest share of NEW foreclosures.*
WHY? Job losses are the major reason once safe borrowers are now in trouble. With unemployment continuing to rise (I expect it won't peak until after 2010) the prolem is only gpoing to get worse...and the bad housing market, banks, and the whole credit system is not going to be "fixed" anytime soon as a result.
This=BAD NEWS for the equities markets and our economy.
Homeowners who are "underwater" cannot borrow against their houses, and with a growing number of people unable to borrow because of impaired credit means the economic "consumption spending engine" known as the American consumer will be kept on "idle" for a long time to come. Perhaps long enough for the Weimar-cum-Zimbabwe hyperinflation whammy to hit us full-force.
Am I over-reacting? Here is some perspective (* see above):
- From 2000-2006 PRIME borrowers accounted for 2.7% of distressed mortgages.
- The number of PRIME mortgages in default (or behind by 30 days, read: distressed) was 9.1% last quarter and should go over 9.2% this quarter. Most of 2010 will be similarly ugly.
I'm largely ignoring the "Money Honeys" (you know, Maria B and the rest) at this point, as well as Jim Cramer. There are no 'green shoots' of recovery, and I'm awfully tired of seeing market news containing words like "markets rise on HOPES of recovery" and similar drivel. They can whistle past the graveyard, but I'm not buying into any of this "we're about to turn the corner" baloney and walking with them.
We are still in the house of pain, and everything the Government has done to date has assured that we will remain there much longer than we otherwise would have had to and that the pain wil be deeper for all.
I'm now looking to see if the surf is going to break both left-and-right simultaneously while watching for the NEXT wave which I expect to be rising defaults in business loans and commercial real estate loans.
Wednesday, 3 June 2009
Surf's UP - 3 waves.........from Rico
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As long as people are holding onto money, the Fed is free to print more, the aim being to prevent financial system bankruptcies that domino so badly that the legal system would tie them all up arguing about who owns what for a hundred years.
Mission creep is trying to stimulate the economy, which doesn't have much upside.
The inflation crunch will come when people start spending again, and then the Fed will have to unprint money very fast to prevent inflation. Since this will cut short an incipient recovery, enormous political leadership will be necessary, either that or universal economics lessons, which the media are unlikely to provide.
Anyway, that's the danger time, not now.
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