Filed under: International markets, Newsletters, Mutual funds, Goldcorp Inc (GG), Commodities, Stocks to Buy

“There’s no question these are dangerous times and the financial world is in uncharted waters,” caution resource experts Mary Anne and Pamela Aden.

In The Aden Forecast, the sisters offer an exceptional in-depth discussion on inflationary vs. deflationary foreces, their outlook for precious metals, and their top gold and silver positions for long-term investors.

“The global financial system is on very thin ice, teetering on collapse. Global central banks clearly are literally pulling out all the stops to revive lending and the world economy.

“Will these efforts work? Will they be enough? Those are the most important unanswered questions of the day and only time will tell, but we should know much more in the critical month or so ahead. Why?

“The Fed is spending money at an astronomical rate. It’s creating this money out of thin air by monetizing bad debts and whatever else it has to. Remember, this is on top of all the other ongoing government expenses and it’s extremely inflationary.

“Normally, there is a lag of about a year or so between money creation and inflation but eventually, what’s recently happened will result in massive inflation, a much lower U.S. dollar and a soaring gold price.

“The bottom line is this, if the banks start to lend again, then the economy will be on the road to recovery and inflation. But we know the banks are scared and they’re being extremely cautious, for good reason.

Continue reading Deflation or hyper-inflation? Gold or bonds?

Deflation or hyper-inflation? Gold or bonds? originally appeared on BloggingStocks on Fri, 07 Nov 2008 15:40:00 EST. Please see our terms for use of feeds.

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A guest post from Constantine von Hoffman, veteran business journalist and author of the blog CollateralDamage.biz, a humorous look at marketing, business and his dog.

Popular opinion has it that Barack Obama won because he took some red states away from John McCain. Nonsense. Obama won all the red states. And McCain won all the black states. But this has nothing to do with that stupid red state/blue state dichotomy. This is about the much more tangible difference between red (ink) states vs. black (ink) states.

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Filed under: TD AmeriTrade Holding (AMTD), Financial Crisis

Here is a frightening statistic: about 63% of people with retirement accounts have stopped contributing to them. That little nugget comes courtesy of a recent survey conducted for TD Ameritrade (NASDAQ: AMTD).

Half of those who stopped contributing to their retirement accounts cited “financial strain due to the economic downturn.” Another 32% cited unemployment, while 25% mentioned health care costs, according to a company press release. Of those polled, 34% had less than $50,000 in investable assets.

Many of the people who’ve quit or curtailed contributing — nearly one in four — are aged 35 to 44, which should be prime earning years. I am not going to bore you with financial planning 101, but the earlier you start to save (absent a market meltdown), the better because over time the stock market is your friend. Lately, though, it has not been much of one.

Mulling over this survey got me thinking that whoever is elected president is going to face the gargantuan challenge of rebuilding the financial security of millions of Americans who are being forced to push back their retirement plans or who have mortgages they can no longer afford. It’s going to take years for people to rebuild their nest eggs and undo the damage they have done to their credit by over-extending themselves. Many people may never be able to return to their former lifestyles.

Of course, that may not be such a bad thing. If this crisis has taught us anything, it’s that people need to live within their means.

Many people stop contributing to their retirement plans originally appeared on BloggingStocks on Tue, 28 Oct 2008 14:27:00 EST. Please see our terms for use of feeds.

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Filed under: General Motors (GM), Politics, Financial Crisis

General Motors Co. (NYSE: GM) Chief Executive Rick Wagoner, the longest serving head of an automaker, is personally lobbying members of Congress to back a federal bailout of the struggling automaker, which wants to merge with its much weaker rival Chrysler LLC.

Bloomberg News, which broke the story, reported that Wagoner’s “involvement includes attending meetings, such as one with Treasury Department officials last week in Washington.” You can bet that Michigan’s powerful senior member of Congress, John Dingell, is attending many of the same meetings as Wagoner. GM no doubt is employing an army of lobbyists — both Republicans and Democrats — to press its case. The company, which for now may be the largest, has little choice.

GM and Chrysler would need between $10 billion and $12 billion to integrate their operations, according to a Citigroup note cited by Bloomberg. Combining the two fading industrial behemoths would be a logistical nightmare. Imagine trying to combine disparate systems for everything from personnel to purchasing to accounting. Let’s not forget the byzantine IT systems at both companies as well.

Economically, it’s hard to justify bailing out GM. Decades of incompetent management at the Big Three resulted in the industry drowning in billions of debt. The problem with telling the industry “no” is political. Dingell is a 1,000-pound gorilla in Congress. The auto industry continues to have considerable clout in Washington as well. Their argument is simple: if Wall Street fatcats can get a federal bailout, why not us?

The problem with rescuing Wall Street is that lots of struggling industries are going to pass the hat in Congress. What about the airlines? The retail sector? Pharmaceuticals? When does it end?

Can GM CEO Rick Wagoner’s lobbying help land federal bailout? originally appeared on BloggingStocks on Tue, 28 Oct 2008 13:12:00 EST. Please see our terms for use of feeds.

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Hedge funds are continuing to lose big bucks, suspending redemptions and, in a number of cases, liquidating. They all cite difficult market conditions. Which markets, though? Derivatives have been under the radar lately, yet there have been many events that would force mark-to-market accounting. Recent changes in SEC rules allow banks to defer mark-to-market and keep off balance sheet certain assets. Hedge funds too?

From the Nobel Prize-winning asset managers who brought us Long Term Capital Management, Bloomberg today reports that Platinum Grove Asset Management LP has suspended investor withdrawals from its largest fund after a 29% loss in the first half of October. That’s right, 29% in 15 days. The year to date is higher.

“The decline left Platinum Grove Contingent Master fund with a 38% loss this year through Oct. 15. Funds employing a similar approach of exploiting differences in the value of related securities fell 14 percent last month and 30 percent this year to date,” according to Hedge Fund Research. “Hedge funds are reeling from the worst financial crisis since the Great Depression, losing an average of 20 percent this year. A surge of investor redemptions forced firms such as Blue Mountain Capital Management LLC and Deephaven Capital Management LLC to freeze funds to stem the tide of withdrawals.”

Hedge funds are getting it in both directions. Investors want their money back and prime brokers are demanding higher margin requirements. Platinum is only one more of dozens of funds that have suspended withdrawals rather than sell assets at fire-sale prices, the reason given by the hedge funds themselves. Hedge funds are down 20% this year on average, as measured by the HFRX Global Index.

I thought hedge funds were supposed to make money regardless of how the market did. As Mish points out, “to collectively be down 20%, they had to have been making one-sided bullish bets on something. Where’s the hedge?” Twenty percent or more down is a lot of value lost. On the surface, there are plenty of stocks down big for the year. However, derivatives seem to be under the radar again. We know that hedge funds are big players in derivatives, which, as we also know, are worthless hard to price. Wonder how that’s going to be dealt with for year-end bonus calculations.

Anecdotal reports of 401k participants not being able to switch out of stock and bond funds—especially PIMCO— into money-market funds are increasing. Sounds like a lot of losses going into year end.

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Source [blownmortgage]

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Filed under: International markets, Newsletters, Commodities, Agriculture, Stocks to Buy, Potash Corp. of Saskatchewan (POT)

“Investing in agriculture-related companies has been one of our main themes for the past year, and we still favor it,” say resource experts Roger Conrad and Yiannis Mostrous.

The co-editors of Vital Resource Investor note, “We’re adding a new stock to the portfolio that should benefit from the increasingly higher global demand for fertilizer: Potash Corp. (NYSE: POT).

“Potash is the world’s largest and lowest-cost publicly traded potash producer, the fastest-growing segment in the fertilizer business. Its potash reserves are sufficient for more than 100 years of production.

“The company controls about 70% of the world’s excess capacity. Potash Corp is also the world’s third-largest phosphate producer and fourth-largest nitrogen producer. Current phosphate reserves should last more than 50 years.

Continue reading Potash (POT): Planting profits for global growth

Potash (POT): Planting profits for global growth originally appeared on BloggingStocks on Tue, 28 Oct 2008 13:52:00 EST. Please see our terms for use of feeds.

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As October came to a spectacular end, the housing market is still in severe distress.  You would think that all the massive government intervention would at least do something in regards to stabilizing prices but unfortunately for Uncle Sam, prices are determined by local area incomes and fundamental factors.  The massive economic intervention which has […]
Related Posts:
■Economic and Financial Alchemy: 3 Trends to Follow in the Next 90 Days: Pseudo Drop in Nationwide Foreclosures, The End of One Plasma in Every Room, and Loving Your Car a Little Longer.
■California Housing Inequality: Top 4 and Bottom 4 Zip Codes in Los Angeles California. Foreclosures and Zip Codes do Matter.
■IndyMac Bank: Bank Failure, Long Lines, and a Real Home of Genius. Another Reason why IndyMac Bank Failed.
■Real Homes of Genius: Today we Salute you Compton. $294,900 for Your Very own Prison.
■Real Homes of Genius Special Edition: Today we Salute you Southern California. 6 Counties and 6 Homes.

As October came to a spectacular end, the housing market is still in severe distress.  You would think that all the massive government intervention would at least do something in regards to stabilizing prices but unfortunately for Uncle Sam, prices are determined by local area incomes and fundamental factors.  The massive economic intervention which has taken the form of billions in capital injections to banks has yet to see massive purchases of toxic mortgages.  You may be asking yourself like the diligent citizen that you are, what are some local area factors in determining household prices:

(a)  Household incomes

(b)  Neighborhood safety

(c)  Schools

(d)  Employment outlook

When you look at the above 4 items, you quickly realize that the government intervention does nothing to address any of these.  First, pumping money into banks will not increase the household income of families.  Next, neighborhood safety or quality of life issues will have minimum impacts based on this massive bailout.  Many schools derive their income from local property taxes so a declining market hurts their budgets.  And finally, the market intervention does nothing to the overall employment outlook unless you are one of the few banks that can go to the U.S. Treasury and get a government sponsored corporate welfare check.

Banks are hoarding the money because in order for them to make loans, they need a qualified populace.  The government can scream all they want but responsible lenders, the few that are out there don’t want to give money with no standards and return to the genesis of this economic crisis.  One of the new measures is massive loan modifications.  But in the world of unintended consequences, many borrowers don’t want their loans modified!  Why?  It is hard to determine how many people bought homes with the idea they were going to flip the property for a nice sum of cash.  They may have no intention of staying in the place.  IndyMac Bank, now under the auspices of the FDIC is trying a massive loan modification program.  There’s only one significant catch.  People aren’t responding!  Bwahahaha!

“(L.A. Times) But of the 35,000 seriously delinquent IndyMac customers who were sent letters about the possibility of such modifications, more than half have yet to be heard from, officials said this week.”

And this isn’t for lack of incentives either:

(a)  Reducing the borrower’s interest rate to 3%.

(b)  Extending the loan terms to 40 years.

(c)  Waive a portion of the interest on the mortgage.

Where do I sign up?  I’d like to put some my investment properties under these terms.  Unfortunately, I pay on time and have not been late so I guess that excludes me.  If you own your home and pay on time, wouldn’t you like similar terms to the above?  Those numbers look like a beautiful coastal sunset yet some people have their eyes closed.  Yet the government is saying sorry, you are prudent and responsible and unlike aspiring flippers or Wall Street gamblers you did not take unwarranted risks therefore you get to sit back and watch your money be squandered.

Therein lies the rub.  The government is operating under the impression that people will “do the right thing” and fight to stay in their homes.  However, many of these people flat out lied on their loan applications with the help of mortgage lenders, both complicit to varying degrees, and entered into the deal together.  Even back on June 1^st of 2007 I reported that there was a survey that found that 50% of stated income loans had incomes with 50% or more of their household income inflated.  This had nothing to do with some government mandate forcing poor people to buy homes.  This in fact was greed on many levels.  Therefore, you have a massive amount of no documentation loans that from day one started on false pretenses and included both poor and rich alike.  If the loan started out on a massive lie, who is to say what the intention of these folks is?  Maybe the borrower was a suburban couple who watched too much HGTV and thought they could flip a home.  Heck, each week we saw a new group of aspiring flippers on shows like Flip this House and most of the time they were middle to upper class folks.  If they got in way over their heads, why would they want to stay in that home even on generous terms?

You also have to think like a shady person.  Lying on a mortgage application is flat out fraud.  Now, IndyMac Bank which is under the FDIC, a government backed institution is trying to get a hold of you shady borrower.  You know you lied and committed fraud and now you’re getting a government letter?  Hmmm, guess how a few of the borrowers are going to respond?  They’d rather let the home foreclose and be gone.  The government’s premise is that fraud isn’t as rampant as I think it is.  After all, much of the fraud can only be seen after the fact.  That is why it is fraud!  There isn’t a housing fraud data bureau.  Yet anyone with an ounce of common sense could see what was going on.  Especially in places like California where IndyMac made a large amount of loans fraud was the case and not the exception.

In this article, we are going to look at 7 of the hardest hit areas in the country and also give you 7 home examples that put this housing bubble into a nationwide perspective.  Some readers think that only California and Florida had delusional and greedy people.  Too bad greed is a global human vice.  Today we salute you America with our Real Homes of Genius Award.

A Real Country of Genius

First, we will be going by the Case-Shiller metro areas.  This monthly report is one of the most widely used housing health indicators since it tracks same home sales over a period of time.  Unlike most reports that look at monthly sales and then the current monthly price, this report tracks the same home over time.  Some have been critiquing the median prices as an overall indicator of market health but even looking at other measures, the housing market is very unhealthy and in need of help.  Let us look at an excellent graph put together by Calculated Risk:

*Source:  Calculated Risk

From this list, we will be looking at the following areas:

(1)  Phoenix Arizona

(2)  Las Vegas

(3)  Miami

(4)  San Diego

(5)  Los Angeles

(6)  San Francisco

(7)  Detroit

It is stunning to see that the top 5 declining areas have seen prices decline from their peak by over 30% and in 2 cases, by over 35%.  All 7 areas above have seen prices decline by 25%.

Let us now look at each individual area and give you an example of what kind of insanity took place during the height of the housing bubble.

Area #1 - Phoenix, Arizona

Decline from peak:      -36.3%

Peak reached on:         June 2006

Peak sale price on home:         June 2005 for $340,000

Current list price:                    $189,900

Phoenix Arizona is the epitome of the housing bubble.  Builder after builder erected enormous McMansions thinking this housing bubble would last forever.  In few other states can you find this many oversized McMansions that are selling now at fire sale prices.  The Inland Empire in Southern California is a touch of Arizona for those who never ventured out of the state.

The above home was built in 2004, has 4 bedrooms and 2 baths, sits on 2,190 square feet and as you can see from the picture is a good sized home.  This home is currently foreclosed and selling 44% below the peak price.  Only one small and tiny problem.  The employment situation in Phoenix is poor.  This of course is dragging the housing market down while many McMansions sit empty.  Prices are coming down hard and until the fundamental factors improve, this will continue to be the case.

Area #2 - Las Vegas, Nevada

Decline from peak:      -35.8%

Peak reached on:         August 2006

Peak sale price on home:         October 2006 for $315,000

Current list price:                    $172,900

Las Vegas, the neighbor of Arizona always has a flavor for the get rich quick dream.  Why keep gambling inside of air conditioned casinos when you can easily gamble on McMansions galore?  Many people left the penny slots to go flipping in sin city.

The above home has 4 bedrooms, 2 baths, and sits on 1,890 square feet.  Built in 2004 (see a pattern here) this is a nice place.  But again, the major caveat is employment!  The local household income is $67,000 so the peak price of $315,000 never ever made any sense.  It put the home to income ratio at 4.7.  The current income to home price ratio is now at 2.5 which makes a bit more sense.  As I discussed previously, the simple equation in determining a suitable price for a home that you can afford is:

I’d like to point out that the equation above should reflect the actual mortgage balance.  That is, do not get a home loan that is more than 3 times your income.  So if that is the case, is the home above a deal?  Doubtful.  You need to remember that we are now working in reality and we have to go with things beyond the price.  The economy in Las Vegas isn’t exactly booming.  Energy costs are still high and you have to factor that in since AC will cost you a good sum for over half the year.  What we are now coming to realize is that buying a home requires a patient and thoughtful process.  This in fact is the biggest purchase most people will ever make.

Area #3 - Miami, Florida

Decline from peak:      -34.6%

Peak reached on:         December 2006

Peak sale price:            March 2006 for $165,000

Current list price:        $29,900

This my friends, is the biggest single percent price decline I have seen on any home.  The price decline from the peak is a stunning 81.8%!  Where the Phoenix and Las Vegas homes were nice McMansions in the middle of the desert, here we have a true Real Home of Genius in Miami.  If you think someone made one delusional move in paying that peak price just look at the sales history:

03/25/2006: $165,000

12/29/2003: $113,000

11/07/2003: $74,000

This home is a 3 bedroom and 1 bath home.  It is 1,174 square feet and features the new patented Garbage Can 2.0 photography:

The household income of the area is slightly over $30,000 so the current price may or may not be a bargain depending if safety and good schools are a concern for you.  As an investor, who knows how the vacancy rates are in this area.  3 times this home sold at inflated prices and there was no justification for those $100,000+ sales.

Florida and California had shacks selling for absurd prices as well.  Aren’t you happy that your tax dollars are going to bailout lenders that actually gave out money on these places?  The next 3 areas are all in the sunny state of California.

Area #4 - San Diego, Calfiornia

Decline from peak:      -32.7%

Peak reached on:         November 2005

Peak sale price:            April 2007 for $430,000

Current list price:        $199,900

When this housing market reaches a bottom in the long future (California won’t see a bottom until May of 2011 and I’ll give you 10 reasons) the nominal amount of money lost will come disproportionately high from one state, California.  People bought up homes in the inner city, outer city, the valley, mountains, and anywhere with a California address.  It was complete and utter insanity reminiscent of the 1920s Florida housing bubble that included trustworthy characters like Charles Ponzi who sold “prime Florida property.”  Where have we heard that language before?

This home is located in Chula Vista, a city in San Diego County.  San Diego was one of the first counties to reach a price peak.  It was the canary in the coalmine.  This home above is down an eye popping and gut busting 53% in slightly over a year but this isn’t uncommon given that the entire region is down nearly 40% from the peak reached last year.

This home has 4 bedrooms and 2 baths and is 1,508 square feet.  Built in 1953, it is actually newer since some homes in California were built during the Great Depression.  It has been on the MLS for 96 days even after having the price reduced to this level.  Why?  Well the average household income in the area makes $60,000 so the recent price reduction on 10/20 may cause some eyes to look here since it puts it near that 3 times income ratio.  Yet this house needs work:

You’ll have to factor in whether you want to spend the time to get this place ready to go.  And that is another minor item.  During the boom, it wasn’t uncommon for banks to also give you additional funds for you to fix a place up.  If the bank didn’t help just take a cash advance on your credit card.  Now, let us say a home will require an additional $20,000 in work you will need that plus a 10 to 15 percent down payment.  Even with these slight standards, the market is drying up.  People are broke.  That is why they needed easy credit in the first place!

Area #5 - Los Angeles, California

Decline from peak:      -30.9%

Peak reached on:         September 2006

Peak sale price:            December 2005 for $305,500

Current list price:        $85,000

I’ve been hearing some absurd pundits blaming lower income folks for causing this economic calamity.  What a shock that they don’t blame lenders who were “professionals” and had a fiduciary responsibility for making boneheaded loans.  Last time I checked, lower income families weren’t investing in credit default swaps or jumping into high yield bonds.  This is a red herring and a distraction.

In fact, who cares if lenders made bad loans in these areas right?  I wouldn’t care if say, IndyMac Bank, wanted to make loans to people with no ability to ever repay them.  I do care when the government (aka you) gets involved to bail them out.  That is then a major issue.  That is why I am adamant that many lenders should still fail or be forced to write down mortgages to current appraised values if they want government help.  If it forces some institutions to collapse, so be it.  They never belonged here anyways.  Some are also wanting to blame Fannie Mae and Freddie Mac for this entire mess.  They miss one tiny fact however.  They weren’t the biggest players in the toxic market!  As of November 2007, Fannie Mae had $57.9 billion in subprime loans.  Not a small number at all.  As of 2006, $600 billion in subprime loans were originated.  These were originated by many aggressive mortgage outfits like New Century Financial, Countrywide, and Ameriquest trying to satisfy the appetite of Wall Street firms looking for mortgage backed securities and a method of allowing side bets in derivatives based on the housing market.  Plus, you have an even larger Alt-A market that catered to middle/upper class candidates who frankly, decided to speculate in the market.  The credit default swap market is over $50 trillion in value.  There are over $10 trillion in residential mortgages in the United States.  Let us blame the approximately $1 trillion subprime market (much of which has already foreclosed) for all the ills of our economy.

This above home is truly a Real Home of Genius.  Whichever lender made this loan should be banned from the government TARP program.  This home is 756 square feet with 2 bedrooms and 1 bath.  From the peak sale price this home is now down 72.1%.  This home is located in Compton and I put together a montage of the current foreclosed homes on the market:

(click for a clearer picture)

California was truly a wonderland for this decade.

Area #6 - San Francisco, California

Decline from peak:      -30.6%

Peak reached on:         May 2006

Peak sale price:            April 2004 for $400,000

Current list price:        $214,900

It is hard to imagine an area that had a bigger housing bubble than Southern California but leave it to our neighbors in Northern California to beat us out.  Our next home takes us to East Palo Alto.  For those of you from the area, you will know that unlike Palo Alto, the east side doesn’t carry a heavy premium.

This 760 square foot home with 2 beds and 1 bath sold at the peak price of $400,000.  The current list price is at $214,900.  As you can see it isn’t hard to find homes in California that are 50% or more off from their peak sale price.

Only time will tell if we are approaching a bottom but from my assessment and looking at fundamental market conditions, we have a few years before hitting a trough.  Doubt it?  Take a long and hard look at these homes once more.

Area #7 - Detroit, Michigan

Decline from peak:      -27.2%

Peak reached on:         December 2005

Peak sale price:            March 2007 for $65,000

Current list price:        $100

Okay, it only took me a few hours to find a larger percent decline than our Miami home.  This above “home” is now off 99.8% off its peak value!  It is practically being given away.  Detroit is actually facing a fundamental collapse in their economy.  This has more to do not with bubble prices but simply a purely economic driven price decline.  If you need any more convincing this is a good deal:

I’m not exactly counting 4 bedrooms here.  What are you going to do with this?  It is going to cost you a ton of cash to knock the place down.  You have taxes as well.  What about the rental market (if there is one) here?  I’d like to see some of the HGTV folks be sent here on a boot camp 2 month mission to see what they can do with this place.  I doubt granite counter tops would do the thing here.

This is a global problem.  You have now seen 7 major areas and homes that sold for absurd prices.  Sometimes it helps to put a face to the actual problem.  Hopefully this will solidify how bad an idea it is for this bailout to pay face value for any mortgages.  Transparency is going to be so vital that money isn’t squandered into the abyss.  If this were a crime case (which it may become) these examples would probably convince the jury to sentence many lenders to a lethal injection of no-capital.

Today we salute you America with our Real Home of Genius Award.

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Real Homes of Genius Special Country Edition: Examining the 7 Hardest Hit Metropolitan Areas. 7 Home Foreclosures That Make you say Hmmm. IndyMac Bank and Reaching the Untouchable Shady Borrower.

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Related Posts:
■Economic and Financial Alchemy: 3 Trends to Follow in the Next 90 Days: Pseudo Drop in Nationwide Foreclosures, The End of One Plasma in Every Room, and Loving Your Car a Little Longer.
■California Housing Inequality: Top 4 and Bottom 4 Zip Codes in Los Angeles California. Foreclosures and Zip Codes do Matter.
■IndyMac Bank: Bank Failure, Long Lines, and a Real Home of Genius. Another Reason why IndyMac Bank Failed.
■Real Homes of Genius: Today we Salute you Compton. $294,900 for Your Very own Prison.
■Real Homes of Genius Special Edition: Today we Salute you Southern California. 6 Counties and 6 Homes.

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