by Addison Wiggin & Ian Mathias
- HAMP, ha ha!… an even worse failure at “helping homeowners” than first thought… “distressed” home sales return to high-water mark
- Housing collapse to resume? Major bank reveals how many of its borrowers have made a mortgage payment in at least a year… or should we say “haven’t”
- Revealing survey shows how the 2009 “stimulus” didn’t stimulate
- The chart that points to a recovery in natural gas
- Readers fire away on flat tax, Canada’s housing bubble, bull market in wine and more!
For years, we wandered in the wilderness warning of the impact of a housing bubble on the consumer economy to anyone who’d listen. Nobody cared on the way up. Now folks who are trying to oversee late-in-the-game policy solutions to its collapse in Washington are “deeply worried”…
We’re barely two weeks away from the expiration of the homebuyer tax credit that has been propping up the market since last fall.
And already, signs point to its lugubrious affects wearing off. First, the Home Affordable Modification Program (HAMP) has been a joke. Of roughly 1.4 million “trial modifications,” less than one in five has been made permanent.
But a report out this morning reveals it’s even worse than that. Even those modifications that stuck are blowing up. As of March, 2,879 permanent modifications were canceled — nearly double the total from February.
The panel overseeing TARP on behalf of Congress has issued another report slamming HAMP. "We’re adding about 200,000 families a month to postings for foreclosures,” says Elizabeth Warren, the panel’s chairwoman. “There’s no obvious end in sight… I’m worried. I’m deeply worried."
But that’s only the beginning. Well over one-quarter of all home sales in January were “distressed sales” — foreclosures, short sales, etc. The exact figure, as calculated by First American CoreLogic, is 29% — a monthly high last reached in January 2009.
Note the correlation between distressed sales and home prices. Both figures have once again started going in the wrong direction for the National Association of Realtors.
It’s too soon to say this is a discernable trend. But whatever happy medium the housing market found with government assistance last summer appears to be in jeopardy once again.
Meanwhile, we’re getting a slightly clearer picture of how “extend-and-pretend” games have propped up housing prices.
This week, Bank of America revealed it has nearly 500,000 “struggling loan customers” who haven’t even tried to get help restructuring their payments. About half of those haven’t mailed in a mortgage payment for over a year.
We surmised last week that one reason the retail numbers have appeared so healthy of late is that a fair number of homeowners are skipping out on their mortgage, and the bank is playing along because it doesn’t want to foreclose and book a loss.
Now, we know of at least a quarter-million customers at one of the mega-banks who have at least few hundred extra to blow every month at Best Buy and Target.
The consumer numbers are the chords on which the “recovery” tune is being played. People are buying stuff, and that’s sending a signal to manufacturers to start making stuff again. If the housing numbers out this morning are any indication… the fat lady hasn’t even begun her vocal exercises yet.
Hence, U.S. manufacturing grew 0.9% in March, according to the Federal Reserve this morning. And that’s on top of a revised 0.2% gain in February. Likewise, the Fed’s Empire State Manufacturing Survey of New York-area activity grew in March for the ninth straight month.
Indeed, nearly every region of the country is seeing modest growth, according to the Fed’s latest Beige Book. “Modest” recovery is taking hold in every Fed district except St. Louis.
At this rate, we will have to return to calling it the Lily White Book.
Major U.S. indexes are flat this morning, the Dow hovering near 11,100 and the S&P near 1210.
The resilience is no surprise to our commodities watcher Alan Knuckman. “The reflation of beaten-down assets continues to surprise and bewilder investors. I find myself in a day-to-day battle among colleagues and TVs talking heads defending the current uptrend — but as you can see, it’s still intact.
“The depressed stock shares and commodity resources stopped digging the hole lower in March 2009 and resumed the value role for investors, who were searching to retain and maintain returns. Look no further than the new yearly highs in crude made last Monday at $87 coinciding with new yearly S&P highs.
“The current move to Dow 11,000 measures an even shorter 18-month time period to regain ground than the 1987 sell-off. This bullish stock price recovery action has left many commodities lagging behind and relatively unappreciated, in many uses of the word.”
Sounds like there’s some upside potential in the resource sector. You can take advantage with a reduced-price membership to Alan’s premium trading service, Resource Trader Alert. It’s still available through tomorrow.
In Asia, Chinese officials’ attempts to cool off the economy don’t seem to be having much effect. First-quarter GDP grew 11.9% year over year.
On the flip side of this funny old ball, the Greek government has sent a letter to the International Monetary Fund asking to open discussions on the bailout package the IMF and EU committed to last weekend but desperately hoped they wouldn’t have to follow though on.
Thus, the euro has fallen against the dollar for the first time this week, below $1.36. The dollar index has perked up nearly half a percentage point, to 80.58.
Once again, a rising dollar no longer guarantees a down day for gold. It’s back to $1,160 as we write. Oil is down a tad, but still comfortably above $85.
“While there’s been a recent flurry of talk on reviving nuclear energy and new offshore drilling for oil,” writes our income-investing specialist Jim Nelson, “natural gas has been left in the dust — as far as speculation goes.”
Jim cites figures that show total recoverable natural gas resources in the United States amounted to a 60-year supply in 1990. By 2006, that grew to an 80-year supply. And the key word behind that change is “recoverable.”
“Recoverable,” says Jim, “just means that we can access it right now, with today’s technology. In 1990, the resource finders of the day couldn’t look deep in mountains quite like we can today with 4-D seismology. They also didn’t have horizontal drilling, which makes up a great deal of recent U.S. natural gas production.
“All of these technologies have kept natural gas prices down lower than oil, which didn’t benefit from new technology to quite the same extent. But because of some very obvious facts in this country, like high energy importation, rising oil prices and an ever-growing consumption base, natural gas will have its day. And anyone invested early enough stands to benefit from this inevitable natural gas hike.
“The nearby chart shows crude oil has been climbing nonstop since the market crash in 2008. Natural gas, on the other hand, has meandered along, with a nice, but too short rally late last year.
“The bottom section of that chart shows the crude oil-to-natural gas ratio during the same period. While that might not seem like much of a concern, it is.
“Historically, that ratio sits between 6- and 8-to-1. Today, that’s at around 22-to-1. That means it takes about three times as much natural gas to buy a barrel of crude oil now than it did in most of recent history. That’s a very positive sign that natural gas is cheap compared with crude.”
Jim has six – count ’em six — natural gas plays in his Lifetime Income Report portfolio right now. For names and ticker symbols, go here.
Before we dive into the mailbag, one interesting nugget for this Tax Day: The “tax rebate” component of the White House’s economic recovery plan appears to have had almost no impact at all.
Under last year’s “stimulus” bill, tax credits were not issued via a lump-sum check from the Treasury. Rather, the IRS reduced withholding from paychecks. “Making Work Pay,” the IRS called it.
Research indicated people would deposit their lump-sum rebate checks into savings. And what good would that do for consumer spending numbers? But the geniuses who created the program thought if paychecks were a bit bigger — a whole $16 for a single taxpayer paid every two weeks — Americans were more likely to go out and spend, spend, spend it away.
Oops. More than half of the people surveyed by the University of Michigan had no idea their paychecks had grown at all. And now many of them are failing to claim the tax credit on their 1040s — forking over $400 more than they owe, or giving up $400 of their refund.
“Making Work Pay.” Yeah. Enjoy your Tax Day.
“Your reader who wrote that a flat tax would make the rich richer is full of you-know-what. If the individual worker is making minimum wage and is below the poverty level, he is still earning income, and therefore should pay his share of tax.
“The 50% of individuals who pay no tax are not going to be subsidized by the rest of us much longer. The free ride is just about over. The system is broken and ain’t gonna be fixed anytime soon.”
“The reader who implies the flat tax is regressive and benefits only the rich missed one of its key features, which is a healthy exemption on the first $35,000 or so of earned income. So fear not, people below the poverty level will continue to get a free ride, just as they always have.
“As for them paying into Social Security and Medicare for their own personal gain, that outrageous affront to reason would remain as is.”
“The person yesterday who said [a housing bubble] cannot happen in Canada might want to check again.
“Wells Fargo two years ago was selling subprime mortgages, at least in British Columbia. My friend, through TD, got a $375,000 mortgage and he had just gotten his job two months prior, had defaulted on credit card debt three years earlier and just gotten a 15% down payment ‘gift’ from his parents. So he has no skin in the game. Yes, he has to repay the loan, but if you’re broke, you’re broke. With the way commercial jobs are going in B.C., he could be unemployed soon, like a lot of other people. Yes, houses are being built, but nowhere near as fast as last year.”
“Interesting chart on wines,” our final reader writes, “but that kind of exponential growth is typical of bull manias. Watch for the other side of the curve, which already hints at a falloff quicker than the uptick.
“In vino veritas!”
Regards,
Addison Wiggin
The 5 Min. Forecast
P.S. The raw numbers on Greg Guenthner’s performance this week in Bulletin Board Elite…
• Monday: Sell WEL for a 43% gain in just over a month
• Tuesday: Sell JOEZ for an 18% gain in less than 2 months
• Tuesday: Sell STTN for a 34% gain in 1 day.
Not every week is this busy. So far this year, there have been roughly seven sell recommendations per month, averaging out to an 18% gain (including the losing plays). If steady, short-term, double-digit gains sound like your thing, there’s still time to secure access to Bulletin Board Elite at a substantial discount.