Depression Cookin

(gotten it from Mish's blog.)

Warning of Global Financial Crisis

It seems that I'm not the only voice warning about the coming financial crisis (pointed out by various commenter at CR):

1. BIS renews slump fears as global economy pays the price. June 30, 2008
   

   A year ago, the Bank for International Settlements startled the financial world by warning that we might soon face challenges last seen during the onset of the Great Depression. This has proved frighteningly accurate.

2. Fortis warns of American meltdown. June 29, 2008
   
3. Barclays warns of a financial storm as Federal Reserve's credibility crumbles. June 28, 2008
   
4. RBS Sounds Alarm On Markets. June 18, 2008
   

And there are opinions on the response, like "What we can do in this dangerous moment" by Lawrence Summers and CR's commentary to Summers' options.

If you ask me, it's better to let things fall and then pick up the pieces rather than "try to do something" and end up prolonging the pain and the aftereffects.

Copyright 2008, DannyHSDad, All Rights Reserved.

Foreclosures coming to your neighborhood

If you think you are (and will be) immune from the coming foreclosure tsunami, you need to check out realtytrac. The (P)re-foreclosures and (A)uctions on the map will point the way to future REO (B)ank-owned properties -- and will force your neighborhood prices to be lowered all around.

Here in Orange County, CA, we have seen homes owned by bank (REO) be listed for 40+% off. For example, one home we saw was bought for $600K last year (Feb 2007) and the bank repossessed the home and put it on the market for $325K last month (May 2008) and it went pending in matter of days.

And just yesterday I saw home (surrounded by "P"'s and "A"'s and "B"'s) for sale with the following notes:

Looking for a Steal? Well, STOP LOOKING!! YOU FOUND IT! This is NOT A FORECLOSURE & NOT A SHORT SALE! MOTIVATED SELLERS Want this Home Sold TODAY!!! [details deleted] Did YOU SEE THE PRICE?? It's NOT A MISPRINT and YOU Are Not Dreaming. LOWEST PRICED Regular Sale Property Around! Bring your checkbook! HURRY!!!

So, all those foreclosed homes will lower the comps and hurt normal sellers. These days, all the normal sellers stand out since their asking price is something like $100K or $200K higher than short sale or REO prices. In fact, just few blocks away from this above home was another normal home for sale with about the same spec except the list price was $200K higher!!!

And to think that we've just reached the end of the beginning of this downturn: we'll be getting bank failures, company failures, personal bankruptcies, unemployment and/or lower hours/paycheck, higher taxes, lower pension payments, and more foreclosures/REOs. I personally believe that this downturn will be long and painful: Great Depression II or GDII.

Copyright 2008, DannyHSDad, All Rights Reserved.

Peak Oil and Economy

[Hat tip to Vox Day] WND reports "Discovery backs theory oil not 'fossil fuel': New evidence supports premise that Earth produces endless supply" (which is a free summary of for pay article "Abiogenic Hydrocarbon Production at Lost City Hydrothermal Field" Proskurowski et al. Science 1 February 2008: 604-607).

This could explain why oil is plentiful and new reserves are added, not reduce over the years. This could also explain why old, "exhausted" oil wells are found to be refilled with oil. Granted, we do pump them out sooner than they can be produced but still it seem to me that the peak oil fears are as manufactured as oil themselves.

As for the $100 crude? It's only a matter of time before it too falls down. I've worked for an oil exploration company for 12+ years and owned many shares (including stock options which I exercised for modest gain) so I had and still have interest in following crude prices. Over the years, it's gone up and down and the current peak has to be some combination of war "premium" and a lot of speculations and exchange rate premium (Middle East buys more from Europe so the dollar amount has to go up to cover the difference with the weaker dollar vs the Euro). If you ask me, commodities like crude oil and gold are in a bubble: it's only matter of time before they get deflated, just as the housing bubble is (still) deflating as I type.

BTW, currently my net worth is 80% short of the stock market (DXD, QID, SH and SRS). Overall I'm ahead but this week was not good for my portfolio. You should be (or keep) reading blogs like CalculatedRisk to see (they have nice graphs every once in a while) that we have just begun the downturn of the economy and over time the stock prices, I believe, will follow. Overall attitude, though, people are more bullish than bearish. Stocks should be a leading indicator but it's not all too reliable since people look at future performance based on past results. Stock valuation tools like PE ratio works if the economy is growing but not when the economy reverses: more companies will report fall in earnings (including negative numbers) as we are now seeing: WSJ has a great summary page.

Copyright 2008, DannyHSDad, All Rights Reserved.

2nd Amendment at work: Great Depression

Here's a story from a comment at Calculated Risk (by Hazard):

As far as foreclosures go my father once told me that he attended quite a few foreclosure auctions in the 1930s. This was in the rural south.

And those auctions proceeded as follows.

All local residents attended bringing their hunting rifles and shotguns. When each house (or farm) came up for auction the original owner of it bid $1. The residents then pointed their loaded waepons at the sheriff and auctioner. The house was then sold to the only bidder for $1.

A nice way to keep the government and taxation (without representation) in check....

Copyright 2007, DannyHSDad, All Rights Reserved.