THE DOT - if this turns orange or red be alert

Friday, November 27, 2009

Brainstorming Friday - part 1

1. Interesting is the timing of this Dubai announcement as it was on the brink of Thanksgiving which might be neglectable but just before the start of the biggest islamic holiday which lasts from Friday til Monday - that's a strange timing.
Saturn / Pluto squares are a default pattern and we have 3 sovereigns at the brink at least with Ukraine, Dubai, also quasi sovereigns like California which is a bigger economic factor than those states. With a closer look its actually much more as many Eastern European states are in bad shape - who isn't?.
The full scale will be visible 2010 and will be part of the reason why stock markets will crash around the world in Q1 and Q2. Amazing is again how central bankers downplay the current risks and the corrupt rating agencies as always are behind the curve which makes them absolutely useless.
Bottom line bank balance cheats keep imploding and the ones who made 'profits' phony or real ones will use Q4 to adjust for no tax payments or like in case of Goldman and JPM pay insane bonus amounts.


Building Desert Sand Castles in the Sky

The scramble to identify entities with exposure to Dubai has begun. Almost as desperate as the rush by entities all over the world to reassure markets they have no exposure (or are minimizing it). (Credit Suisse, UniCredit and the Bank of China seem to be leading this race). Bloomberg is citing a JP Morgan report that Royal Bank of Scotland Group was Dubai World's biggest loan arranger over the last two years. Uh oh. We are certain this is totally unrelated news today on Bloomberg:

Royal Bank of Scotland Group Plc said it will issue 25.5 billion pounds of B shares and one dividend access share to the U.K. Treasury and State Aid Commitments.

We love Samsung's attitude (but wish they would have said something earlier):

Samsung C&T Corp., builder of the world’s tallest tower in Dubai, said it stopped work on a $350 million bridge in the city after a unit of Dubai World halted payments. Construction of the half-finished bridge, to the man-made Palm Jebel Ali island, was suspended earlier this month after Nakheel PJSC made no payments for about two months, Cho Keun Ho, a spokesman for the Seoul-based builder, said today.

RANSquawk is reporting that HSBC had $17 billion in loan exposure to UAE at the end of 2008 and foreign banks in general are up to their ears in some $47 billion of UAE debt.

This isn't to mention sovereigns like the Ukraine, Latvia and Greece. (How likely, exactly, is The Hun to loosen the monetary strings for Greece after the Cyprus stink? Zero Hedge says: "Not Very.")

2. The gains of the week have been erased confirming short term the top of last weeeks reversal in the NDX as the weakest link after the Russel. Therefor the weekly upcounts are delayed to the Dec second half rally as the next New Moon around the 15th Dec will be a very positive Astro event short term as it will be in a very positive angle to the Jupiter,Chiron, Neptun conjunction. As I stated earlier the big gathering of daily 13 counts is a topping out pattern and did deliver a short term top. The bigger picture should be a remake of the 2007 top - where we saw a volatile 10% swing double top pattern with slightly new highs. We also should see more intermarket divergence as some indices will underperform and are doing so already. Escpecially in the emerging markets big trouble is ahead which will trigger another wave of credit crunches and huge losses for banks.

3. The Dollar weakness engineered by the US administration brings the world to the edge of a trade war and even more so to a real war. Japan is getting closer to the all time high as the Euro will be in a few weeks - Japan's economy and stock market is already in distress for 2 decades and a high Yen is completely undeserved and will not be tolerated. The only reason the parties on the losing side keep quite is that they do not want to disturb financial markets as that could bring more distress short term and the trade links they have with the biggest consumer the USA. The price is getting now to the pain zone and another downwave in global markets will bring more trouble for all as the market manipulation sponsored by global governments is falling apart slowly with the Japanese market falling already. Its a big illusion the trade peace is founded on as the markets do not reflect fundamentals and have to drop as soon as earnings will show no sustainability going forward. Whatever phony and doctored GDP statistics say the real effect of shrinking demand is visible for the real actors and 11 mio households in USA , who have been left in their homes although they have defaulted and banks have not written down those assets matching numbers of 800 bil. of further losses for banks not accounted yet. The numbers are rising as the jobless situation has not turned and will not any time soon hence the consumption of those 11 mio households not paying rent matches 160 bil. in additional income will vanish at some point and leave America to go through a consumption shock.


Let's look at this from a more analytical eye.

1) The number of households in America is approximately 111,000,000 (111 million)

The home ownership rate, after peaking near 70% (the long term trend was 65%ish but we've tried every trick in the book the past decade to get another 5% into the "ownership society), currently it sits under 68%. I will use 67.5%

That means 111M x 67.5% = 75M households in America "own" a home.

2) We saw just last week that more homes in the US were in deliquency or foreclosure, than there are for sale - about 9.6% in delinquency and 4.5% in foreclosure. So 14.1% of home "owners" are living "rent free" - i.e. freeing them from a home payment. Of course some of these people are in dire circumstances so let's not be too flippant about it, but others have chosen to make a calculated decision to walk away from underwater homes and until the banks show up to take the house back they have no housing payment.

So of the 75M households in America owning a home, about 14% are not making a payment.

That means 10.5M households in America are living in a shelter where they either can not, or choose not to make a mortgage payment.

3) Now comes the tricky part, trying to figure out the average note payment. I truly have no idea so let's make an educated guess. The median value of a home in America is roughly $170K, and the average loan to value is about 70%.

About 1/3rd of American homes are owned free and clear of a mortgage meaning the other 2/3rds have notes to pay. Obviously those who are not making payments fall into the 2/3rds category. Hence if we exclude the 1/3rd of Americans who owe nothing on their mortgage, the remaining 2/3rds have a much higher loan to value than 70%. Is it 80%? 90%? No idea... it really makes little difference in our analysis.*

On a $170K home owing 90% means a $153K mortgage, whereas owing 80% means a $136K mortgage. Reasonable people would agree the average owed by the 2/3rds who have not paid off their note would be somewhere in that range.

Next we have to back into some sort of monthly mortgage payment; just looking through some ammortization tables, and realizing some people have bad credit, some average, some good on a $145Kish type of median US mortgage the monthly payment is probably somewhere near $1200-$1300. I am excluding property taxes from this analysis which is another cost that people are avoiding - which is why my numbers are going to be conservative.

So excluding property taxes let's say the average person's mortgage payment is $1250.

Going back to point 2, 10.5M Americans are skipping out on their payments. At a monthly payment of $1250 that is a monthly "stimulus" to the economy due to "not paying a mortgage" of $13.1 Billion.

Annualized that is just under $160 Billion a year of "stimulus" to the US economy via deadbeats; i.e. the Bush 2008 rebate happening quarter after quarter, year after year. Again, I contened the real number is higher than that as property taxes are not included. If I increase the monthly payment "avoided" by $250 (to account for property taxes) we get very close to $200B of extra money flowing through the US economy that should be going to pay for a roof over one's head.

No comments:

About Me

I am a professional independent trader