The bad news is that the US National Association of REALTORS announced that the
country's existing-home sales plunged 5.3% in January, and that, even more
worrisome, 45% of the houses sold were of "distressed properties".
As for prices, the Standard & Poor's/Case-Shiller home price index reports
the ugly news that the price of single family homes dropped 18.5% in December
from a year earlier.
Bill Buckler of the-privateer.com must have seen my eyebrows shoot up and
almost touch my receding hairline, which is more painful that you would think,
and he notes that "Between 1990 and 2007, total mortgage debt held by Americans
rose from
US$2.5 trillion to $10.5 trillion. That alone is an $8 trillion credit surge."
If it were me writing that, I would have continued, "That $8 trillion in
personal debt, amassed over a mere 17 years, is borrowing over half of gross
domestic product (GDP)! Half of everything this country makes and sells in a
year! We're freaking doomed, and it's all because we are so damned stupid
(audience shouts out ‘How stupid, Exalted Mogambo Personage (EMP)?') that we
continually elected the morons who borrowed and spent the money that created
the booms in stocks, bonds, houses and size of government, and who allowed the
Federal Reserve to create the excess money and credit that was used to pay for
the booms, all based on some stupid equation-laden, econometric neo-Keynesian
imbecility that is so stupid that (trust me on this one!) creatures from every
other planet in this sector of the galaxy are laughing at us! Hahaha! Just like
that!"
Mr Buckler is too intelligent to get into a discussion with me about
extra-terrestrial creatures and what they laugh about, and offers instead that
"The Global Spill-Over" of all that money and credit is "that surge, and others
like it, spilled over the rest of the world. US imports exploded upwards as
new, additional US dollars surged out - and imports from the rest of the world
surged in."
This "surging in", I note, is thanks to foreigners investing in productive
capacity to make the stuff they sold us, which is now sitting idle ever since
the supreme stupidity of an American "services economy" has been exposed as
just another foul, flagrant fraud.
Even so, American GDP (which is laughably composed primarily of trading
financial assets and government deficit-spending) fell at an annual rate of
"only" 6.2% in the fourth quarter, which is worse than the 3.8% drop that the
lying government first reported but is a lot better than GDP declines overseas,
where economies are contracting at terrifying rates!
This may be why David Stevenson at MoneyWeek.com writes that in Britain, "life
assurers are now factoring in corporate bond defaults hitting post-Great
Depression levels - the peak was in 1935."
Worse yet, Mr Stevenson says, "this may not be gloomy enough" and quotes David
Wighton as pointing out, "The market thinks it's going to be even worse. Bond
prices currently assume that as many as two in every 100 top-rated companies
will fail to make their debt repayments, far higher than after the 1929 crash",
which Mr Stevenson interprets as, "In other words, the market is now reckoning
that 2% of the best businesses will effectively go bust."
Two percent of the "top-rated" companies failing is, I guess, the good news,
although it doesn't tell what percentage of "less-than-the-best businesses"
will fail, which is a category in which I am keenly interested, as I have
apparently driven my own company into that very category with my incompetence,
if you believe the biased opinion of a bunch of lying accountants who hate my
guts and who are always tattling on me to my boss.
Mr Wighton does not care to comment on my personal troubles, but he does give
me a hint of what is to become of me when he says, "As for the riskier
companies, Moody's reckons that nearly 20% of all European 'speculative grade'
companies will fold in 2009." One out of five will fail! I'm doomed!
Back at home, Agora Financial's 5-Minute Forecast notes that "the Dow is just a
few points from a 12-year low" which is pretty bad, but Bob Woods of Kaizen
Managed Assets goes father back than that and reports that "The Dow began the
last century at 66. It peaked in October of 2007 at about 14,300. It is now
under 7,100", which he says means that "it took 107 years for the Dow to rise
to over 14,000, and 16 months to give half of those gains away!"
And when you adjust those nominal gains/losses in inflation-adjusted terms, it
is much, much worse, proving, once again, that since the majority of investors
must lose money so that the minority of investors can make money, and since
sometimes you are with the majority (and thus lose money) while at other times
you are with the minority (and thus make money), net-net-net everybody loses
money in both real and inflation-adjusted terms in the Stupid Stock Market
(SSM).
And so why do I always yammer, yammer, yammer at you to "buy gold"? Gold
started the last century at about $20 an ounce! Ponder this and be instructed,
as I have done, and you, too, will happily say, "Whee! This investing stuff is
easy!"
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2009, The Daily Reckoning.)
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