Jun 29 2010

Stock market volatility reflects a weak economy and the end of a generational bull market. S&P 500 back to 1998 levels. Middle class thrown to the wolves in this stock market.

The economic crisis has ushered in the end of a generation long bull market.  Most average investors ignore the fact that heavy market volatility is a sign of an unhealthy stock market.  The stock market since the lows reached in 2009 has been on an unstoppable bull run.  Yet the real economy where most Americans work and spend money has not reflected any of this irrational exuberance.  The S&P 500 has rallied 53 percent from the lows reached in early 2009 and that is including the current retracement back.  On Tuesday the stock market pulled back on data showing consumer confidence plunging from what analysts had expected.  Outside of Wall Street the economy is walking on eggshells.

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Jun 27 2010

34 states saw tax collections decline in the first quarter of 2010. State budget deficits projected well into 2010 – Plunging tax revenues reflect a weaker economy dragged down by pervasive unemployment and underemployment. $112 billion in state budget gaps for fiscal 2011.

Big states with dismal budget short falls like California and New York have been making the news for the last couple of years.  Yet the problems with state budget deficits go beyond the big and mighty.  The banking system has been stabilized at a very high cost to average Americans but state budget deficits reflect a deeper underlying problem.  States generate revenue through a variety of taxes; these show up through payroll taxes, sales taxes, property taxes, and other fees.  As a metric for the economy, these are a good way of measuring the health of economic activity.  Looking at current massive budget deficits states are mired in expenses with revenues falling.  For the next fiscal year of 2011 states will face a combined $112 billion in budget short falls.  California’s current budget deficit is $19 billion (current plus next fiscal year).  But things can and may get worse.

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Jun 24 2010

Current state of the American housing market. What foreclosures and distressed borrowers tell us in hidden data. 2010 on path to having 4 million foreclosure filings. HAMP call center data at record levels while loan modifications dwindle.

Trying to get honest data from the banking industry regarding the current state of housing is a monumental task.  We are left using multiple data sources to get an accurate picture of the current state of the American housing market.  Even then, we are left trying to piece together data that is largely incomplete.  For example, we now know that banks are delaying foreclosure filings so these don’t show up in monthly reports.  Next, we have another group of home owners that have stopped paying their mortgages as a strategy.  These points are important but are buried deep in reports.  Yet we can still try to garner information from other sources that will provide a better perspective on the U.S. housing market.

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Jun 22 2010

Middle class shackled by banking debt chains. 113 million households each owe an average of $113,000 in banking debt for mortgages, student loans, credit cards, and auto loans. $45 trillion in household sector debt, government debt, and domestic financial sector debt.

The middle class has been systematically shackled by large amounts of debt, banking debt to be exact in a new form of financial serfdom.  Much of this started in the early 1970s on par with the deficits don’t matter policy that engulfed our monetary policy for the next four decades.  Like any giant structure built on debt, there is usually a point where a sort of debtor’s spiral will hit.  Many middle class Americans have seen this occur with their credit card debt, mortgages, and auto loans.  This also comes at a time when we have a record amount of two (or more) income households.  More people are working under one roof but earning less and less in low paying service sector jobs.  If it wasn’t for the two income trap, we’d see how shackled the public is to the banking debt that is so pervasive in America.

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Jun 20 2010

Taxes coming for $1 trillion in commercial real estate. 1.2 million partnerships own over $1 trillion in CRE. Too big to fail dumping CRE debt.

The problems for commercial real estate are deep and significant and have the potential of stifling any sort of recovery.  Rather than looking at commercial real estate (CRE) as a reason for more stimulus or bailouts the question should examine why so many CRE locations are defaulting.  Can this be a sign that demand for goods, strip malls, condos, and other large projects are simply not in demand from a middle class that is confronting a new austerity?  The problems in commercial real estate have the potential of causing the same amount of market volatility as residential loans for a handful of reasons.  Unlike residential loans, there is little sympathy for CRE owners.  It is expected that those who buy into million and billion dollar projects understand what they are doing (even if this assumption is wrong as we are finding out).  So the potential for massive support here is limited from the public but we have seen the U.S. Treasury and Federal Reserve bail out virtually anything with a connection to the banking industry.

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