Financial hardship speeds up as it approaches – The Dollar Meltdown

Three excellent articles at Charles Hugh Smith’s site:

1984 + 23 = 2007

Something Has Changed

The Closing of the U.S. Home ATM Dooms the Global Economy

All three articles in the last week show that as we head into the autumn, it’s not only the seasonal fall that approaches…

Bin Laden, 9/11, Sub-Prime Meltdown Woes, Nukes on B-52s – A Tense Week

There’s plenty for the wary to watch this week. Much anxiety circulating on the net regarding:

1. The new video from Osama bin Laden
2. Wall Street sell-off on Friday thanks to bad labor statistics
3. Nukes hitchhiking across the country
4. 9/11 anniversary on Tuesday
5. Interesting "put" options that suggest someone may think (or know) that a catastrophic economic event is about to occur

I don’t think I’m wrong when I say that this week has more negative portends than any week in a long, long time, so a quick analysis of each of them follows.

New bin Laden video

It’s not the first time we’ve seen OBL since 9/11/2001, but it’s the first time we’ve seen him with a dyed, trimmed beard. What’s the significance of that? According to this study of Islamic thought regarding the trimming of beards…Hard to say. It’s amazing that Western Civilization is locked in a battle to the death with people who feel the need to argue and write extensively about trimming facial hair. There’s also some concern that September 11th is on Tuesday this year, as it was in 2001.

Wall Street

For the past several weeks, it’s been the sub-prime mortgage meltdown making headlines. Now Countrywide says it’s laying off as many as 12,000 workers. The problem is deepening, and will continue to accelerate, since the housing industry is enormously important to the strength of the U.S. economy, even if the Fed doesn’t see it (or doesn’t want to panic us). Housing drives the economy. It provides jobs, that provide disposable income that allows people to buy things. The appreciation of real estate "values" has created money through home equity loans that bought millions of flat-screen HD tvs. Well, that equity is drying up, and so will the tv sales (and the auto sales, computer sales, vacation spending and in many cases, consumer debt servicing). It’s a bad scene.

Hitchhiking nukes

Six nuclear warheads flew on the missile pylons of a B-52 bomber last week, in clear violation of Air Force rules governing the transportation of atomic weapons. How in the world could this kind of "mistake" happen? Was it a mistake, or were the weapons flown, rather than trucked from Minot, ND to Barksdale AFB in Lousiana to meet a deadline? There’s buzz (also known as "informed speculation) that since Barksdale is a staging base for Midlle East deployments, the weapons were on their way to be launched against Iran, but some dissident military assets blew the whistle. Some say it was all a stunt intended to send a message to the Iranian government that we’re not messing around. There are even those who say the nukes are to be used on us. Any way you look at it, it’s a dangerous situation.

9/11 Anniversary

Tuesday marks the 6th anniversary of the attacks on the World Trade Center and Pentagon by someone hostile to the American people. Whether you believe it was, in fact, 19 Islamic extremists or some sinister cabal who want you to think it was the work of Osama bin Laden, the fact remains, not only is Tuesday the anniversary of those horrific events, but September 11th was also a Tuesday. Some who see conspiracy everywhere are pointing to such a coincidence. Hard to say whether the kind of people who would commit such acts care about that or not, but it’s still worth noting. The human mind and eye constantly searches for familiar patterns, and throughout the history of our species, such patterns reappear time and time again.

Those strange "puts"

In the weeks before 9/11, some still unidentified investors purchased options that would only pay off if the stock prices of American Airlines and United Airlines dramatically fell. Well, since 9/11 caused both of those companies financial hardship (since their aircraft were used in the attacks), someone made billions of dollars. Did they know 9/11 was going to happen? Sure seems so. Well, now word is circulating of an even bigger "bin Laden" trade. Someone has bet a billion dollars that the stock market is going to lose 30-50% of its value by September 21. If it doesn’t lose that big, the entity making the trade loses close to a billion dollars US. What do they know? A more rational (but not completely reassuring) explanation for these trades says they’re merely a "box trade" engineered to provide a low interest rate loan.

Be well, be safe and be prepared.

Bush to “protect” homeowners?

Nah. Despite the President’s "concern" over people just trying to make their house payment in the face of adjusting mortgage rates (which they were told all along would happen), he’s really (in the short run) protecting someone else. From Financial Armageddon:

Even assuming that some troubled borrowers manage to hang on, the truth is that enabling more of the same kind of bad behavior that got people into trouble in the first place will only make matters worse.

The hair of the dog that bit them isn’t a cure. It merely delays the moment of reckoning.

In reality, guaranteeing loans for homeowners who can’t afford the payments, encouraging mortgage-holders to hang on until they’ve been bled dry, and giving false hope to those who would be better off cutting their losses really only benefits one group.

The lenders.

Exactly. The rates will keep adjusting, but a short term band-aid helps the President and his party in 2008. The bill, when it finally comes to the table, will be considerable. Devastatingly considerable.

Dow Troubles – Do they mean anything?

The DOW has lost over 4% of its value in the past two trading days. This, on the heels of much backslapping and highfiving over an invincible economy, evidenced by the index clearing the 14,000 mark. Now these same pundits (mostly on the Fox News Channel) fail to ever mention the fact that when inflation is figured in, we’re a long way from a new all-time record. Sure, we’ve hit a nominal record, but a real record? Sorry.

Gold has taken a hit, but according to Dan Norcini on Jim Sinclair’s site, it took "humungous" effort on the part of the buyers, with an enormous number of gold transacted to do it. Already, the price of gold has rebounded a bit. Sinclair sees Gold over $1,000.

The dangers in this market are many. Our debt, both personal and public is immense, and growing daily. From Treasury Bills to the credit card that gets whipped out several times a day, someone holds the note on each of those debts, and expects to be repaid. Unfortunately, no one seems to be making an effort to pay off those debts, and everyone knows it. Every single stock on NYSE and NASDAQ is dependent on someone buying something, a product, service, or information. When people don’t have enough money, they don’t buy as many things. When they have a lot of money, they buy and have expectations to buy in the future. While housing prices were rising and interest rates were falling, it looked like free money was everywhere. Refinance your house, take out some cash and your payment’s lower. Wow. Free money.

No.

Those dollars were taken out, spent on plasma tvs, big vacations, new car payment support, etc. Now the housing bubble is starting to (depending where you live) burst or deflate and the value of those same houses are falling, often past the amount level of debt attached. Every day, homeowners in different regions of the country are finding that after one or two refinances, they now owe more on their house than the house next door sold for. That’s a bad situation for everyone, and is only going to get worse. The future ability of consumers to buy stuff will translate to a lower DOW. Remember, all those companies SELL stuff.

The Contraction of American Cities

If you’re serious at all about trying to figure out what the future will bring, you must read this essay by James Howard Kunstler.

I’m going to tell you right now, though, it’s not a pretty picture that Kunstler paints. Of all the possible futures, this one absolutely glows with real potential for becoming our reality. It’s amazing to me just how in denial our culture is about the coming effects of Peak Oil and the Housing Bubble, both terms that have become, for the masses anyway, memes of apocalypse and not taken seriously. But how can the problems be argued with? I know people who will tell me that real estate values will always go up. They always have and always will. In this conversation, I will ask "how much did your house appreciate last year?" In Phoenix, it’s not unusual for someone to answer "$100,000."

"Okay," I reply, "Did your income go up by that much?"

"No! I only got a 3% raise last year."

My final question then, is "so how much does real estate appreciate before no one can afford a house?"

Sub-Prime Lending Woes

Blinkered and Blindsided – from Financial Armageddon …

Technorati Tags: Housing

Money Back If You Cancel?

The excellent Housing Doom Housing Bubble Blog discusses what happens when you buy a new home but can’t sell your old one. They claim there’s a 50% cancellation rate going on right now, and builders are getting tougher about returning deposits.

This disturbs us, because it represents “under the radar” evidence the housing market is rapidly becoming toast, even in places where the perception is invincibility (like the home market of both this blog and the Housing Doom Housing Bubble Blog).

Disturbing.

Housing Bubble – Deflating?

Some even deny there’s a housing bubble. Not sure what they’re smoking, but it must be good stuff.