“I know there is a God — I see the storm coming and I see His hand in it — If He has a place for me then I am ready.”
John F. Kennedy, scrawled on a prayer breakfast program, NYT, May 15, 1964
If the bulls lose control of 765 we may see a fairly dramatic decline to set an intermediate bottom. There is potential to 545 but that seems rather extreme.
A measuring objective of 605 seems more likely, although it does seem a little early in the cycle for that in the first half of the year.
Obviously this is going to be a difficult question to answer since the housing markets in the US are not homogeneous. There are significant 'hot spots' on the coasts and in highly overbuilt areas.
Here is a chart based on the Shiller Home Price Index. It shows the geometric mean on US housing back to 1890. It has a growth rate of 3.4%.
So one might estimate that if housing prices revert to that very long term mean, depending on how fast they revert we might see them roll back all the way to 1995 pricing.
We would contend that the trend back to 1890 overlooks the significant price inflation that occurred since the US left the gold standard under Nixon, which is all too painfully evident on the chart.
We have drawn a very simple linear regression of that price change since 1970 rather than 1890 in red.
Based on that, our own estimate is that on average housing prices will revert to the levels which they were at in the year 2000 for a particular home or its comparables, the price at which its value is most likely to stabilize. We would tend to treat 1995 as a 'lower bound' which might be more valid for those areas which had appreciated the parabolic increases from the bubble period.
Here is a chart that shows the major Case-Shiller Home Price Indices since 1993.
There is quite a bit of data, but the point is to show just how unevenly parabolic the housing bubble became, and how it diverged significantly after 2000 when Greenspan unleashed the bubble economy with the repeal of Glass-Steagall.
It was more like a Ponzi scheme with certain areas most vigorously targeted when seen from this vantage point. Therefore we ought not to expect the declines to be of equal percents as well. Some made more, some will lose more.
The Case-Shiller US Housing Indices Since 1993
The easy times, the extended bull market in equities and corporate profits, with a disinflation and an easy money policy, created a lot of very wealthy people who managed other people's money by riding the incoming tide of the Greenspan era and a willingness to use the world's reserve currency to run up incredible levels of debt.
The disparity of wealth in the US from the wealthiest few to the less fortunate many has never been greater since the start of the Great Depression. And if history repeats there will be a tremendous effort to make the public pay for most of it.
Privatize the gains, but socialize the losses. Having the public bad bank buy the bad assets of the big money center banks and financial ponzi schemes and take all the losses is a thinly disguised act of theft and injustice on an almost incomprehensible scale.
There will be no lending until we drive the bad assets out of the insolvent banks. And the way to do this is to restructure the banks and write off their bad debts, and apportion the losses to the shareholders and credit holders, while backing the individual depositors and guaranteed pension funds one hundred percent.
We cannot continue to subsidize a few big money center banks from their losses, and call anything in our government a republican democracy of the people, by the people, and for the people.
"Nationalization" does not mean that the government will run the banks. Nationalization means that a body like the FDIC will take an insolvent bank, liquidate its assets, arrange for the payment of creditors, and either sell the assets to other banks, or allow a solvent bank to emerge from the process. This is what the FDIC does with any bank that fails, that is not a a powerful manipulator of the political process.
A 'bad bank' or a guarantee of private banking assets by the government is the subsidy of private losses by public money. It is a continuance of a fraud.
We either have a free market, with both gain or loss, or we have a managed economy where the Federal Reserve Bankers and ex-bankers decide who succeeds and who fails, who gains and who loses, who commands and who serves.
No matter who pays for it, the party is over.
Bloomberg
Insurers’ Corporate-Bond Losses May Exceed Subprime
By Andrew Frye
Feb. 3 (Bloomberg) -- Corporate debt defaults may cost U.S. life insurers “substantially” more than losses on securities linked to subprime, Alt-A and commercial mortgages, said Eric Berg, an analyst at Barclays Plc.
Corporate defaults are poised for a “significant” increase this year as the recession deepens, Berg, based in New York, said in a research note yesterday. The American Council of Life Insurers estimated the industry, led by MetLife Inc. and Prudential Financial Inc., holds $1 trillion in corporate debt.
“None of the life insurers we studied appear to be doing a particularly good job” of picking bonds backed by companies, Berg said. “Understandably, investors are concerned.”
Life insurers have plummeted in the last year in New York trading as investment losses and guarantees on slumping retirement products sap capital. Hartford Financial Services Group Inc. leads the industry with $7.9 billion in writedowns and unrealized losses tied to the real estate market since 2007, while New York-based MetLife has accumulated $7.2 billion, according to Bloomberg data.
Hartford and Prudential have cut jobs, asked regulators to ease reserve standards and applied for aid from the government’s $700 billion rescue program to replenish funds after reporting net losses in the third quarter. MetLife sold $2.3 billion of stock in October to bolster finances. The Standard & Poor’s Supercomposite Life & Health Insurance Index has declined about 60 percent in the last 12 months...
Here is a copy of House Resolution 6 being discussed by the New Hampshire Legislature.
It certainly sets some limitations on the Presidency and the Congress.
New Hampshire HCR 6
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Nine
A RESOLUTION affirming States’ rights based on Jeffersonian principles...
...That any Act by the Congress of the United States, Executive Order of the President of the United States of America or Judicial Order by the Judicatories of the United States of America which assumes a power not delegated to the government of United States of America by the Constitution for the United States of America and which serves to diminish the liberty of the any of the several States or their citizens shall constitute a nullification of the Constitution for the United States of America by the government of the United States of America. Acts which would cause such a nullification include, but are not limited to:
I. Establishing martial law or a state of emergency within one of the States comprising the United States of America without the consent of the legislature of that State.
II. Requiring involuntary servitude, or governmental service other than a draft during a declared war, or pursuant to, or as an alternative to, incarceration after due process of law.
III. Requiring involuntary servitude or governmental service of persons under the age of 18 other than pursuant to, or as an alternative to, incarceration after due process of law.
IV. Surrendering any power delegated or not delegated to any corporation or foreign government.
V. Any act regarding religion; further limitations on freedom of political speech; or further limitations on freedom of the press.
VI. Further infringements on the right to keep and bear arms including prohibitions of type or quantity of arms or ammunition; and
That should any such act of Congress become law or Executive Order or Judicial Order be put into force, all powers previously delegated to the United States of America by the Constitution for the United States shall revert to the several States individually. Any future government of the United States of America shall require ratification of three quarters of the States seeking to form a government of the United States of America and shall not be binding upon any State not seeking to form such a government...
