Phoenix real estate breaks a record with 50 percent of all home sales coming from all cash investors. Locals barely can buy with FHA insured loans. Can a desert market dependent on cheap oil and survive in the $100+ a barrel world?
The Phoenix real estate market is a fascinating case examination of an area guided by FHA loans for first time buyers and all cash investors purchasing 50 percent of properties. In January of 2011, the latest month of stunning data, 1 out of every 2 homes sold went to an all cash buyer. We are seeing many investors moving off the picket fence and purchasing homes in these desert cities. Cash is being put into action. The price has fallen dramatically and home prices are cheaper today than they were over a decade ago. But is this a good deal? Are eager investors making a good move out in Phoenix? The median price for a home sale was $119,000 which is down y-o-y by 9 percent and the median condo price was $72,000 down 24 percent y-o-y. When we look at the statistics we see that many eager investors are moving cash off the sideline and purchasing homes with all cash.
The big financial lie – How growing income inequality, too big to fail banks, and stock market delusion swindled the American public and dissolved the middle class.
The American banking system has spread systemic risk all across the economy with laser point precision but very few are even aware of this grim reality. It would seem that only those who understand the system from the cavernous inside and have little to lose can actually speak out against the system as they see it. Bernard Madoff recently called the United States Government a Ponzi scheme. As it turns out many of the biggest banks in this country knew something was suspect with Madoff’s incredible gains but wanted a piece of the action instead of exercising a fiduciary responsibility. Madoff is guilty of swindling investors, many who were greedy and didn’t even bother to ask how Madoff was able to generate 20 percent year over year returns. Wall Street and the investment banks however are guilty of a larger crime by defrauding the wealth of working and middle class Americans. The fact that three years into the crisis and no serious reform has taken place causes us to pause in baffling amazement at the ability to ignore the obvious financial errors. Our banking system is being held up by blind faith while the real wealth of the country is siphoned off to the top.
Banking Mammoths – Top 10 U.S. banks have $11 trillion of the $13 trillion in total banking assets. The problem? We have over 7,650 banks. The banking oligopoly leads to a concentration of wealth at the top.
The too big to fail problem is still an issue that needs to be dealt with even though many would like to ignore it like a big dark secret. The FDIC is holding up a system with $5.4 trillion in deposits and no deposit insurance fund. I know a lot of Americans have a hard time believing this but this is a cold hard fact. The entire banking edifice of our nation is held up on pure faith combined with the backing of our largest banks and government. This wouldn’t be such an issue if banks operated as responsible stewards of the economy but instead they have used the taxpayer wallet as some kind of endless buffet piggybank. What is even more troubling is based on the latest data, the top 10 bank holding companies in the United States are reporting $11 trillion dollars in assets. Now why is this a problem? The FDIC insures 7,657 banks with $13 trillion in assets. In other words, over 84 percent of all banking assets are in the hands of the big ten banks. This is a modern day oligopoly. Take a look at this chart for the top 10 banks:
The financial disaster of continuing to bailout commercial real estate through the shadows of Federal Reserve jargon. Why you haven’t heard of this trillion dollar bailout.
The media has done a fantastic job painting over the enormous sinkhole of a problem that is commercial real estate (CRE). U.S. banks hold over $3 trillion in commercial real estate loans on properties that were once valued at over $6 trillion. Today those values are down to roughly $3 to $3.5 trillion depending on what metric you believe. How is it possible for a market that has lost $2.5 to $3 trillion to become largely hidden in the dark from the mainstream media? We constantly hear about $3 billion deficits or other issues but is the trillion dollar figure just so enormous that they don’t even bother investigating? It is probably more likely that the Federal Reserve has concealed massive failures in CRE by allowing banks to play a game of extend and pretend that continues today. The shadowy problems of empty shopping centers, vacant car dealership lots, and misplaced strip malls is largely a taxpayer problem now. Banks made these irresponsible loans but had the Fed hand over taxpayer loot in exchange for worthless real estate.
Federal Reserve ultimate protector of the banking class – Fed Reserve sends a thank you to American middle class and world for bailing out the banks with a gift of inflation. MIT chart tracking millions of items shows much higher inflation than CPI.
The Federal Reserve has one clear mandate. That mandate involves protecting the biggest investment and commercial banks on Wall Street at the expense of the American people. This deflation of quality of life is being felt in the most clandestine and subtle ways like a shift in the wind. The Federal Reserve through archaic money operations has bailed out the too big to fail and has passed on the bill to millions of Americans. We are now seeing this through the rising cost of goods outside of housing. As noted before manufacturers unable to charge Americans with an average annual income of $25,000 anymore on goods for fear of losing customers, many producers are simply shrinking the package of items hoping customers do not notice. Aside from this hidden cost since the US dollar is being devalued by virtual money printing, the CPI which is heavily weighted by housing is also showing increases in inflation. As expected it looks like the Fed is only concerned with protecting one sector of our economy.
Collective financial insanity – FDIC backing $5.4 trillion in total deposits on pure faith – US banking operating with negative deposit insurance fund and massive debt leverage. The greatest Ponzi scheme known in the financial world.
People psychologically are programmed to believe in financial realities that benefit their own cause even if they have no merit in empirical data. Many also forget that banks, especially the investment kind have a notorious track record of running amok when allowed to. The FDIC and US banking is a perfect example of a system built on nothing more than faith. Currently the FDIC insures individual deposit accounts up to $250,000. Given that most average Americans only have $2,000 saved up this is rarely an issue. However, FDIC insured banks have $5.4 trillion through insured deposits yet have a deposit insurance fund (DIF) that is in the negative to the tune of $8 billion. Is this a Ponzi scheme you ask? Not exactly but it shows that the entire financial edifice that we call US banking is built on largely a foundation of sand being held together by pure psychological confidence. Just look at this chart below; as insured deposits grow the insurance fund actually dwindles:
Wall Street rally based on fantasy valuations and investment banking trading – S&P 500 back to 2007 valuations and up nearly 100 percent from March 2009 trough.
Wall Street has a way of sucking people back into a money losing vortex. With hedge funds using high frequency trading boxes the public has no chance in competing with these organized and sophisticated gambling casinos. It is amazing how quickly people forget. It was only in March of 2009 that the S&P 500 hit 676. The incredible part of it all was that many stocks were still over valued at that point. Since that time the Federal Reserve has juiced the system up with trillions of taxpayer dollars. As we brought up in our first analysis the average American only has $2,000 saved for retirement so this rally isn’t because of them. Most of the financial wealth in the country is aggregated with the top 1 percent of Americans. The stock market is a betting parlor for the rich and incredibly many people are now being sucked in yet again with the S&P 500 hitting 1,329. The S&P 500 is a few points away from having a 100 percent increase from the March 2009 trough. Is this a new bull market? Not likely if we actually pay attention to earnings.