5/11/11…homing in

Bloomberg Top Stories:

*Trade Deficit in U.S. Widens More Than Estimated on Surge in Oil Imports

*Bank of England Signals Rate Increase This Year as Inflation Accelerates

*AIG Share Slide Pressures Treasury Share-Sale Fees for BofA, Goldman Sachs

*Home Sellers Become U.S. Lenders of Last Resort for Credit-Damaged Buyers

*Corn Reserves May Revive on Acreage Gains as Soy, Wheat, to Fall, U.S. Says

*Buy Apple Options on Volatility Before Developers Conference, Goldman Says

*Buy-to-Let Market Revives as Britons Choose Bricks and Mortar Over Shares

*Mississippi River May Inundate 3 Million Acres, Halt Refinery Operations

Tuesday’s volume was 832 million shares in the wake of Monday’s post-Citi 1:10 reverse split – the THIRD lowest of 2011. It was just 778 million sharess). Advance/Declines and Breadth were strong at +3-4x on all exchanges. New 52 week highs surged back to 495, nearing the old range of 500-600 while new lows slipped to 52 from 61. As for the indices: Dow +0.6%, Transports +1.1%, S&P 500 +0.8%, Nasdaq Composite +1% and 100 +0.9%, while the Russell 2000 surged 1.6% vs 1.1% vs +0.5% vs -0.4% vs -1.3%…now down just 1% last seven sessions and -1.7% from the rally high!  

The Dollar continues to trade between 74-75(3 days) – the first time since 4/26! 74.57 -.11! Monday’s low of 72.83 was the lowest since 7/29/08. The last close above 76 was on March 30th and it had been almost straight down since. Since April 14th the long bond had been in a range of 4.47% to 4.36% broke below it for a few sessions but is not back at 4.35%, while the 10 year note continues below the old range (3.41% to 3.29%), and is now 3.22%! For a sixth straight session T-Bills out to 3 months are effectively at ZERO percent. Gold and Crude had ‘selling climaxes Monday then immediately tumbled and continue to do so. Gold hit a new all-time high of $1577.40 on May 2nd and has now come back up to $1514.60 -$2.50 after trading down to $1462.50  last Thursday, supporting just below the 40 day m/a! Crude had been down SIX straight sessions after also taking out the rally high with a $114.14 print Monday before plunging like Gold did. It is now $102.90 -1.12.

European equity markets mixed: FTSE -0.1%; CAC 40 +0.5%; DAX +0.5%; Nikkei +0.5%; Hang Seng -00.2%; Korean Kospi +1.3% after being closed; Indian Sensex +0.4%. U.S. Futures little changed and mixed: Dow +7; SPX +0.20; NDQ -1.20

…a friend wrote yesterday saying TB was wrong to talk about the ‘biggest transfer of wealth in history’ as foreclosed homes are sold to wealthy speculators. On the surface that would appear true but the fact is, and TB can say ‘fact’ as he has this from a high school friend who was one of the biggest buyers of foreclosed properties in L.A. county for years and has turned that business over to his son. When he was doing it he would flip for a minimum of $50,000 the day he bought a property, now he manages bids for wealthy syndicates. These groups have insatiable appetites and explains why half of all sales in California are foreclosures (3 out of 5 in Minnesota). So is this bad?

Normally one would say they are clearing the market of inventory, but they are not. In fact, even if prices are stable as they now ‘appear’ to be, there is a huge number of homes the owners would love to sell IF the prices go up, but they are trapped, either upside down or needing money to pay off other debts.

But these syndicates are then renting out the property, taking depreciation and interest expense – when most homeowners can’t even get the banks to talk to them and if they will re-fi or make a new mortgage it is sold to FNMA/FRE three months later. Did you see where FNMA said it needs another $8 billion to be in the black? Meanwhile the GOP would love to scrap both but if so there would be NO mortgage market and all sales would be to the wealthy syndicates.

Now for the biggest concern: the major asset of the top 2% of taxpayers is investments, while for the bottom 90% it is their home, or was. That is what created the middle class after the Great Depression and now it is no longer the American Dream but a pipe dream due to high unemployment, little of no wage increases, etc.

That is what is so sick about this…and it was for the most part the wealthy that created it. Remember when Ed MacMahon’s Beverly Hills home was foreclosed? Is he the typical flake? TB’s friend said he and others in wealthy areas thought the banks would never really foreclose on them – they were wrong. Yet, there is a huge school out there that believes only flakes and scammers lost their homes which is patently false. It was largely a result of inflated appraisals (often under duress), and pushing buyers and re-fi’ers to variable rate loans with huge increases after the teaser period. At first this worked until the roof fell in.

Two Bloomberg stories this morning highlight the problem: in the U.K. homeowners are buying second homes to rent out as they can get no return in short term accounts and are leery of stocks (something not happening here). Meanwhile, on this side of the pond people who have been trying to sell their homes for the last three years are selling them to uncreditworthy borrowers and carrying back the loan. Is this a stable real estate market? You decide. Remember there will be another one million foreclosures this year, so it ain’t over yet!

That is why TB is upset about wealthy speculators buying up property. Goodbye, American Dream. Hello, class warfare…it is here.

. . .  – – –  . . .    . . .  – – –  . . .

Hope you all have a great day!




  1. LDH said

    yes, it is tough to contemplate the social impact of the investor home-buyers, yet at the same time advocate residential purchases as a sound investment idea for those with the means, because it does seem an attractive investment alternative to fixed income securities. many of these syndicates are foreign, i have heard from broker friends. since banks won’t rent back to foreclosed occupants themselves, perhaps this is the only solution right now?

    • traderbill said

      I have had this discussion with another reader and I agree that is the only way to ‘try’ to help clear the inventory backlog. But without the opportunity of upward mobility, and face it most of the wealth in the middle class came from their homes, where is the ‘hope’ that enables a democracy to thrive? Since 1980, the middle-class has been dramatically reduced in size yet hidden because instead of saving to buy things we borrowed to buy them and now we have debts AND declining home values. While unemployment for college grads is only about 4.6% that is deceiving as many are taking jobs below their qualifications that could have been filled by high school grads, jobs without benefits, or considerably lower pay. three years ago starting pay for an engineer was $80k, now it is about $50k. Try paying off student loans on that.
      This is why we have to repeal the Bush tax cuts since the wealthy were the only true beneficiaries and because of their wealth they continue to thrive while the rest of America doesn’t. If this seems like a path to socialism/communism, I’m afraid it is, while I do not wish or advocate it. I want things as they were but that is very doubtful and future generations will pay for it. Thanks for your comment! TB

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