A glimpse of the future

Every day it seems there is more to say about the economy. In a sense that's a good thing, at least we are acknowledging there is a problem. In another sense it’s not a good thing because the problem is BIG and we are a little late getting out of bed to deal with it.

There will be many follow-on effects as things unravel that are difficult to predict but I think that Mish’s article highlights some important points here. Give it a read.
Vern

"There has never been a national housing (credit/debt) bubble as big as this one. Indeed, because of the carry trade and loose economic policy everywhere, this is an international fiasco. We are in uncharted territory and the good ship "Credit Bubble" is taking on water fast. It can capsize at any time."

For the full story see: The Disposable Workforce
at: http://globaleconomicanalysis.blogspot.com/index.html

The Blame Game

Just like watching the roulette turn and wondering where it will stop, so now we watch the wheel of blame spin round and round and wonder who it will point at next. I think there is plenty of blame to go around but as things heat up watch the finger pointing. It should be an interesting show.
Vern

National Mortgage News. “On Thursday, members of the Senate Banking Committee lashed out at the Federal Reserve, and former chairman Alan Greenspan, for fueling the growth of alternative mortgage products and blaming the central bank for the rise in subprime-related delinquencies by not doing anything about deteriorating lending standards.”

“In 2003, Mr. Andrea Mitchell touted AMPs, in particular ARMs, to consumers but a few weeks later clarified his statements.”

“Of course, if senators on the committee knew anything about the mortgage industry they would realize that many of the biggest players in AMPs/subprime are non-depositories that are beyond the reach of the Fed and FDIC. The Senate panel might want to investigate Wall Street’s role in the crisis but that might cast many of their largest donors in a bad light.”

The graphic says it all

Enough said

Graphic thanks to JMF at Immobilienblasen

Homeowners and acceptance of market realities

The Pioneer Press reports from Minnesota. “Welcome to an ultra-competitive spring housing market. Motivated sellers are cutting prices. Axing in some cases. And that new willingness to move the product marks the end of last year’s stare-down between buyer and seller, and could spell a sharper falloff in area home prices over the next year.”

“Chuck Eckberg was stunned when his clients last week announced they wanted to drop the $419,000 price on their house by $20,000. Price reductions are something sellers typically resist like a colonoscopy. ‘I didn’t think we needed to reduce at all,’ said Eckberg. ‘They’re trying to beat other sellers to the punch because they don’t want to suffer through anything they saw, or many experienced, last year.’”

“Serious price reductions that typically don’t start until closer to the July 4 make-it-or-break-it point, are happening now, Eckberg said. ‘I think people are finally saying ‘I get it,’ said broker Steve Hyland.”

While it's true, some people get it, it is still evident in other areas that some people don't. I expect that in the cities that experienced slower rises in home values there will come eventually an acceptance of the trend that is now taking hold of housing markets around the country and in other parts of the world.

For instance places like Washington State, that haven’t yet heard the loud ‘POPPING’ sound and sellers in those less dynamic markets holding out the desperate hope that this Spring will bring an upswing in their sluggish housing markets. They are ignoring reality and bucking the law of momentum.

There are certain realities that none of us are going to escape:

*A slowdown in U.S. consumer spending spreading pain globally.

*A slowdown in construction and all related industries that will take jobs with it, further reinforcing a drop in consumer spending and housing.

*An end to easy money (no-doc liar loans) that fueled the engine for Get-Rich-Quick flipping, and the spill-over effect that will have up the food chain.

*Negative economic psychology reinforcing the downward trend.

It doesn’t really matter what part of the U.S. you are in, you will eventually feel the pinch if only indirectly, as market forces trend even further downward. It is bound to affect all of us to one degree or another.
Vern

Homeowners and denial of market realities

From an article by JONATHAN R. LAING from 2005, quoting the author of the best selling book, Irrational Exuberance, YALE ECONOMIST ROBERT SHILLER.
http://www.leavittbrothers.com/pdfs/housingbubble.pdf


"ADDING TO THE UNCERTAINTY: Homeowners often live in denial of market realities by listing their properties at unrealistic prices or simply taking their homes off the market to await better times.

Shiller worries that the market has become so overheated in many areas of the U.S. that any decline could pick up momentum in two to three years, when the adjustable-rate mortgages that have accounted for nearly half of all home loans in the second half of 2004 will begin to "reprice" at higher interest rates, potentially burying overly optimistic buyers sporting scant equity but hefty debt.
Low-to-no-down-payment and interest-only mortgages would only add to the possible mayhem of involuntary sales if home prices were to sag, Shiller adds."

It looks like we are now crossing the threshold Mr. Shiller warned about. The resetting of half a trillion dollars in exotic loans in 2006 has given financial markets the jitters in this first quarter of 07, and there is around three times that amount in these funny-money loans due to reset this year. It doesn’t look rosy.

Also Mr. Shiller mentions denial with people pricing their properties much too high for the market, which we saw a lot of in the second half of 06, and others taking their homes off of the market awaiting a better time to sell. I believe we are seeing that prediction play out now. I have seen unexplained falling inventories in some areas of the US, possibly due to this effect.

As a result I expect a new jump in housing stock this April, the beginning of the summer selling season. If my guess is right, a lot of people will see this as their last best chance to cash out. Reality however will begin to seep in around the end of July when the market proves nonplused and sellers will begin to lower their prices to match market realities.
We’ll see.
Vern

The housing market as Musical Chairs

The Ventura County Star. “A few who qualified for home purchases only a few weeks ago have seen their financing vanish along with their dreams as lenders spurn 100 percent loans. The situation has many who sell real estate in Ventura County worried. By some estimates, at least 20 percent of first-time buyers in recent years have needed 100 percent financing.”

It's not just Ventura County, this is taking place across the U.S. as you read this.

The whole point of the game of buy and flip has been not to be the last guy standing when the music stops.

The whole point of musical chairs is the same.

If for some reason you are unfamiliar with the game:
You remove a chair each time someone is out so you always have one less chair than you have butts to put in them. (Kind of like a diminishing market). The players go round and round while the music plays. (Kind of like housing flippers). Then you all scramble to claim your chair when the music stops, leaving someone out in the cold. (Kind of like the current state of the market).

In this scenario the first time buyer represents the chairs and cheap money is the music. Of course that leaves the flippers as ‘The Butts’. Seems now due to credit standards suddenly tightnening there are more butts than chairs.
Vern

An Enron Economy

From: CNNmoney.com

http://money.cnn.com/2007/03/16/markets/markets_earnings/index.htm?postversion=2007031612

"Next worry for stocks: Earnings slowdown
Subprime mortgage woes have stolen the spotlight of late but very soon slow earnings growth will be back in focus."

"With "subprime" on everyone's lips and recession questions back in vogue, the stock rally's other big antagonist has been enjoying a low profile of late.

But not for much longer. With the first quarter winding down and the corporate confessional period heating up, Slow Earnings Growth is set to stage a comeback. And it ain't gonna be pretty."

Let's face it, we live in a culture of Arthur Anderson accounting and Enron accountability.

Goldman Sachs, Bear Stearns and Lehman Brothers all reported strong earnings this week as well as trumpeting their low exposure to the subprime mortgage market. Maybe their direct exposure is low but indirectly these companies are involved in derivatives which as far as I can see puts them at risk of a domino style downturn affect kicked off by subprime defaults.

As far as corporate earnings go, a slowdown in consumer spending equals a slowdown in earnings. Simple math, who doesn’t get this?

If you are looking for clear answers, they are probably not out there. This is a dangerous game and it can go on a lot longer than most of us might imagine. After all, it’s irrational. The fundamentals are disconnected from reality and there is a mass willingness to not ask questions as long as a stock or investment is making money.

In the end, we probably won’t see the bend in the road until we can’t make the turn, and then of course, it’s too late.
Vern

Sub-prime Loans and the Failure of Credit Welfare

http://www.itulip.com/forums/showthread.php?t=1087
"The idea of making credit card (unsecured) and mortgage (secured) loans available to anyone with bad credit or no credit record in amounts greater than any reasonable, historical measure of credit-worthiness justifies in order to "help" them is a fraud."

I have to admit, with all the gyrations in financial markets and housing I don’t know where to begin these days. I spend most of my time reading news and blogs just to keep up.

I read on itulip yesterday that Greenspan is now spewing contradictory statements to things he said when he was Fed Chairman. The question is: why did we believe him in the first place?
O.K., I don’t find it so shocking. A man has to be a little self interested to achieve the kind of power and position Greenspan attained.

The problem however as I see it is, as money became cheap and easy to get, most of us became just as self interested and in many cases down right greedy. As I look around, I see a culture of corruption dominating society. This is not something that will go away if we close or eyes and wish.

Most of us played a part in the current state of the economy, whether we didn’t take the time to understand the loans we were getting into or we were profiting on a rising housing market. There is plenty of blame and denial to go around.

One thing that can’t be denied though: the level of outright corruption in the mortgage industry. I’ve read stories of how people were cheated by predatory mortgage brokers and in some cases it nearly defies belief. Even worse, it illustrates a level of moral decay that is just a little frightening.

The bottom line is however, when the dust settles, who will be left to sweep up?
Vern

The tax payer gets it in the end, literally

This from itulip.com

“The most toxic risk pollutants are the first to seep up, related to sub-prime loans, but soon enough risk pollution will spraying out of every fissure in the financial system.

Let's guess how this is going to go:
The Wall Street Investment banks and commercial banks that sold the mortgage backed securities get to keep the fees they earned, the drug addicts and old ladies the lenders went after as borrowers get stuck with loans they can't pay–not to mention Joe and Jane home owner who got talked into a badly structured loan because it was more profitable for the lender–and as with the S&L Crisis of the early 1990s, the tax payer gets stuck with the tab.”

Read the complete article at itulip.com http://www.itulip.com/forums/showthread.php?t=1078

Denial, housing and the stock market

‘The rise in mortgage delinquencies in the U.S. has to be one of the most predictable events of the century so far, but has nevertheless provoked a further reaction in financial markets,’ said Paul Donovan, an economist at UBS.”

So here we are.
I'm no genius but I’ve projected these events months ago. The thing that vexes me most is the depth of denial I am encountering. There are individuals whom I know that do not want to wake up and smell the coffee. There is still time to take positions to cut losses or even in rare cases make profits. I meet with responses of irritation however when I broach the subject of an impending housing to stock market crash with my friends. The most common response is something like sticking their fingers in their ears and saying La-La-La loudly.
I feel like the crazy guy on the street corner crying out to all who will listen that the worlds is about to end, you know that guy.

Contrary to this attitude are Norwegians I talk economics with (I live in Norway).
They come up amazed that my projections over the last two years have played out. They believe however that they have no skin in the game. For them this is a spectator event.

Not so fast…
I know it’s not going to go down well here but Norway is not immune. Though their economy is mainly oil export, they have other areas that are vulnerable and will be affected. The greatest effect though will be negative global economic psychology, this single aspect is what I expect will bring the most pain to Norway’s booming domestic economy. The world economy is a big boat and we’re all in it together.
Vern

Spit put your gum and pay attention!

This from Mish Shedlock

A Big Yawn
Mr. Practical on Minyanville is reporting a big yawn.

Something like this image on AllPosters.
Yawn...This is the typical response when I try to lay out for people why they need to be concerned. It is really simple in my simple mind.

When markets are lending, when credit is being created, things look good. Money is everywhere because people can borrow. This is inflation.

When markets want that debt paid back, things get ugly fast. Money dries up because people can't borrow anymore. This is deflation.

My concern stems from the fact that over the last several years it is the government stepping in and artificially "forcing" the market to lend more than they wanted to. Blame the banks if you want for greed, but they are just taking their cues from the Fed.

Now we find way too much debt in the system. Sub-prime is the first casualty as it should be. The bulls claim that this deflation won't spread. I do not believe this: everything in the economy is at the margin and one little leak can spring the dike.
Mr. Practical
Thanks Mr. Practical.

Bloomberg is reporting Foreclosures May Hit 1.5 Million in U.S. Housing Bust but the optimists just yawn.Dale Westhoff, a senior managing director at New York-based Bear Stearns Cos., the largest underwriter of mortgage bonds, said last week that failing subprime lenders "are going to be absorbed very quickly.""Hedge funds and private equity are going to play a very important role in buying distressed assets," Westhoff said.

In contrast to the 1991 housing skid, worker productivity is increasing, consumer confidence is expanding, interest rates remain within 1 percentage point of the 40-year low and the jobless rate fell to a five-year low last month. Last month, 7.4 million new and existing homes were sold at an annualized pace, more than twice the 1991 bottom.

And real estate people tend to be the world's most optimistic, said Bryce Bowman, director of development for Randolph Equities LLC in Chicago."There's a lot of capital chasing real estate and that has not ceased with this bust," Bowman said. "Developers have stopped building crazy speculative housing developments and are burning off their inventory, so we're excited about the end of '07, and we want to be ready to go when business picks up in '08.

" Other than the lending sector, the market is giving a big yawn too. Some (as noted above) are even excited. Paulson is chirping the Global Economy is Strong. "We have a global economy with low inflation, high levels of liquidity and I feel very comfortable with the global economy.

"But I'm with Mr. Practical. This is the start of something serious not the end of it. A huge downward spiral has begun and there is now no way to stop it. There is simply no way this economy can absorb a knockout punch of what is likely to be another 1,500,000 homes added to the market via foreclosures this year, nor can the economy absorb all the people who are going to be losing their jobs in the upcoming recession when consumers will finally be forced to cut spending.

If 1,500,000 foreclosures sounds high consider that RealtyTrac reported 130,511 new foreclosure filings during January alone, an increase of 19 percent from the previous month and an increase of 25 percent from January 2006. That is an annual rate of 1,566,132 foreclosures (and rising) so an estimate of 1,000,000-1,500,000 could be at the low end, and that is for 2007 alone.

There is a lot of money (credit) going to money heaven over this. Real estate prices are going to take another big hit as a result and banks will liquidate REOs for any price they can get. That will cause a further cascade in home prices which will also prevent many from refinancing. Tens of thousands of homeowners will find they can not refinance, sell, or move because they owe more on their house than what its worth. Those trapped in that situation will feel as if their house owns them as opposed to the other way around. But for now anyway, the start of this downward spiral is for the most part being greeted by a big yawn from the real estate optimists, the optimists at the Fed, and Paulson at the treasury.

Mike Shedlock/Mishhttp://globaleconomicanalysis.blogspot.com/

Maui housing prices, reality or bubble?

Here is an example of what you can expect to find in the $650,000 price range in kihei, Maui. I use Kihei as a control market as I know the town. It is home to the most full time residence on Maui as well as jobs. It is the largest populated area on the island and has the most realistic housing market, relatively speaking.

Price: $659,000 MLS: 323260 Fee Simple

Type: SF w/Det Ohana or Cottage

Status: ACTIVE
District: KiheiAddress: 63 Eleu Place

Bed: 3Bath: 2.00

Living Area: 1,104 SF

Land Area: 10,051 SF

View: Other

Ohana Bed: 2

Ohana Bath: 1

Ohana Living Area: 600 SF

If this looks like an extreme axample check out the MLS yourself.
Realtors Association of Maui MLS
http://www.mauiboard.com/index.html


I have also noticed a number of properties in the $2 million and up range coming onto the market over the last four months. It’s been said that this group of well heeled homeowners won’t be affected by a housing market downturn. So then why the sudden appearance of so many of these pricey properties for sale at what I'm calling the top of this market?
That is the question…
Vern

More thoughts on Hawaii housing.

With inventories of houses on Maui reaching four times what they were a year ago I think it is safe to say Hawaii has joined the rest of the nation in the housing downturn. What I found remarkable was the number of projects still under some phase of construction. I have included a few shots of projects in Kihei on the south side of Maui. I have however found many more and quite larger projects than these under way in the area. Over capacity? I think so.

I also included a photo of a condo project in Wailea, a little further south of Kihei. Condos there are expected to start at 2.4 Million dollars. Some experts say a downturn will not effect this group of well healed buyers and wealthy baby boomers. I say the economy is connected and a broad downturn in economic and housing markets will make this group less wealthy and less willing to shell out the multi-million dollar price tags being asked for units such as these. We’ll see…

My over riding question however is who is going to fill all of these units? With cost of living fundamentals out of whack, I have found many friends had left the islands in the three years I was absent. I suspect that might be a trend. Some people are packing it in and going to the mainland for easier living.

You can see a number of empty houses and condo units for sale on the Maui MLS. Photos of empty units always spell ‘Flipper’ to me. But what ever the cause of the units being empty the net effect is more capacity.

I see a major choke point coming. Either real wages have to rise in Hawaii significantly or the cost of living must come down. I’m not talking about government cost of living figures where they exclude food, housing and energy, leaving only flat screen TV sets as a measure. I’m talking about basic costs. If not, soon you will have no one to check you out at the grocery.

I’m guessing also that there will be a large over capacity of housing coming to the market by next year, driving down prices and wiping out equity for many current home owners, bad news for those who managed to hang in there.

All that without mentioning the effects of the state and county tax shortfalls that will surely ensue.
Maui already has the worst Methamphetamine problem in the nation, fueling ever increasing crime. Currently Maui County is advertising for police officer trainees to fill gaps left by other officers who left Maui because they couldn’t afford to live there any more. They are currently offering a pay and benefits package of $40,000. plus use of a laptop computer. At and average price of over $650,000. for a one floor cinderblock home you have to bring home more bacon than that to buy a house.
Sign me up!
Vern





Here you can see from the current photo the first phase of a new condo project in South Kihei Maui

As you can see from this photo from two weeks ago, condos are still under construction on South Maui.

Here is a shot from the same time period in central Kihei. Just breaking ground.
This is a condo project curently under contruction across the street from the Grand Wailea hotel. These condos will start at $2.4 Million

Hawaii jobless rate edges up slightly, another dose of reality

This in the midst of their busiest time of year!

Hawaii jobless rate edges up slightly
The rate in January moved up to 2.2% from its historic low of 2.0% in December

"Hawaii's vibrant and expanding economy continues to produce new jobs that are providing employment to a substantial number of our residents," Labor Department Director Nelson Befitel said.

********

I was recently back in the islands, Maui to be exact where I lived for nine years. As a resident who managed to last more than the critical first three years that usually sends the majority packing for the return trip from whence they came, I learned a few things about that microcosm of planet life.

First: Things are not always as they appear.

Second: Read First

Third: There is a considerable amount of greed and avarice in a population as intensely competive as Hawaii.

Let's face it, if you have ever been, you have entertained fantasies of life there under a palm tree sipping Margaritas. So has the rest of the planet, but on Maui there is a static population of around 130,000 residence. That might tell you something.

There is an old island saying: It's an island, if you didn't bring it with you, you won't find it here.
There in lies the crux of the issue. Competition for resources, it gives some a reason to spew false information.

When I was on Maui, even my most respected friends seemed to swallow the idea that Maui was the exception to the rule and a housing downturn ‘could not happen here’. They trumpeted their low unemployment numbers as one measure of the island’s success. More on that…

Back around 2002 I saw housing prices reaching to the sky but wages remaining static. I reasoned that given the difference in costs of living to incomes many a wage earner would soon be packing for the mainland, leaving the island in need of employable workers. You can’t live on the island for $20.00 per hour, let alone average pay is only a paltry $10.00 to $12.00. The numbers just don't pencil out.

Low unemployment, - or no one left on the island to fill those jobs?

Also as I drove around over the month that I was there I not only saw a huge number of for sale signs on front lawns but they seemed to pop up like weeds as I watched.
The Maui MLS shows falling inventory but do your own search of FSBOs and you will notice a large increase in ‘sell it yourself’ listings off of the MLS. I reason that is in some measure related to the need to squeeze out every penny to cover original purchase price or greed. Why pay an R/E agent 6% of $600,000. or more to fill out some papers?

Bottom line is, Maui is for sale, and many of the people I know who live there won’t hear of it! In fact I made the mistake of having one too many cocktails and told some friends at a gathering what I saw happening to housing on the island as we sat there. I became an instant outcast.
They didn’t want to be awakened from the warm waterfall dream to find it was only them wetting their beds. I kept my mouth shut for the rest of the trip.

In the mean time, if you can afford to live on Maui on $12. per hour, there are plenty of jobs available! And many houses for sale.

Caveat: Less than $750,000 will get you into a rough neighborhood.
Vern

Bernanke: Fannie, Freddie threaten economy

Fannie and Freddie are not only dangerous to the economy for their undisciplined business practices, with 1.4 trillion dollars, they could conceivably move market sectors. In a world with increasingly fewer places to grow cash I suspect this kind of investment game is not beneath them.
There are plenty of small fish out there who can be suckered into the stock market only to have the rug pulled out by deep pocket players such as these.

You might be thinking; ‘ya, but somebody would spill the beans’. $1.4 trillion can buy a lot of ‘co-operation’. There is still money to be made out there for the small investor but if you are playing the market you should factor in these possibilities and play accordingly.
Vern

This from CNN Money
http://money.cnn.com/2007/03/06/news/economy/bernanke.reut/index.htm?cnn=yes

DataQuick's historical data only goes back to 1992!

As I have said before, we are not getting straight poop on the economy from the experts. Take a drive around your town and have a look for yourself. See how many For Sale signs have sprung up. That will tell you more than the experts will.
Vern

Foreclosure DataMarch 5, 2007
Properties Returned to Lender For February 2007, $1.5 billion total loan value versus $425 million September. 2006, and 3,690 properties versus 1,660 September 2006.

Go to itulip for the complete article at http://www.itulip.com/forums/showthread.php?t=1034

Sub Prime lenders paying for their sins

It’s no secret now, mainstream media outlets are on this story. Six months ago not many were talking about it. The truth is there are a lot of people who got into exotic loans for various reasons. Some thought if they didn’t get into the market in the last couple of years they would be forever priced out. They did what they had to to get into that house.

Some speculators took out exotic ARM loans and are now trapped in them as the anticipated market rise is not happening, which would have allowed them to sell for a profit before their rates adjusted. Still others saw their home equity rising and wanted to benefit from it. So they took out HELOCs, bought cars, boats, flat screens and Hawaiian vacations. Sure some will switch to fixed rate mortgages but a number of those borrowers are stuck for two or more years before they can switch out of their ARMs. You can bet that they pulled as much cash equity out as they could, ‘what the heck, if things don’t work out I got the money I’ll just walk away’.
Not so fast...
New laws went into effect last year making second mortgages actionable. In other words you can’t declare bankruptcy and walk from them. It seems the banking industry and Congress saw this one coming.

What does it all mean?
Pain!

We will all pay the price for this one, be it through a receding economy or some government structured bailout of banks who simply won’t be able to absorb the sub-prime defaults, or who take large hits from short selling the rest, or all of the above.

Already US consumer spending is down. Look at China’s lack of orders to produce durable goods this week. A lot of what they make is sold in the US. It’s no longer a matter of if or when the pinch happens, it’s a matter of how bad it will hurt.
Vern

From Reuters.
“U.S. homeowners who bought using 100 percent financing, and those who took out ‘home equity’ loans against the value of their properties, even though they have good credit ratings, could be the next to cause problems in the U.S. housing market.”

“Many recent home buyers bought through 100 percent financing programs known as ‘piggyback’ loans, which relied on one mortgage for 80 percent of purchase price and other financing for the remaining 20 percent.”

“‘Piggyback loans could be the next skeleton to fall out of the mortgage industry closet,’ said Howard Glaser, an independent mortgage analyst. ‘These 80-20 loans give the borrower the illusion of being able to afford more house than they really have the funds for.”

“From mid-2005 to mid-2006, 29 percent of new mortgages involved no deposit by the purchaser to create some equity in the property, according to the National Association of Realtors. ‘When we went out to visit our clients on the West Coast, this was a prime area of concern,’ said Frederick Cannon, a mortgage industry analyst.”

“Another type of financing which could cause problems in the housing sector is the ‘home equity’ loan, taken out by a homeowner against the net value of the property to finance home improvements or other consumer spending. Home equity lines of credit, or HELOCs, grew from $151 billion to $559 billion from 2000 to 2005, according to the FDIC.”

“In a regulatory filing Thursday, Countrywide said 2.9 percent of its prime home-equity loans were at least 30 days late at the end of 2006, up from 1.6 percent a year earlier and 0.8 percent at the end of 2004.”

“‘Second lien holders and second lien HELOC lenders to prime borrowers are in as much of an ‘at risk’ position as subprime mortgage lenders,’ said said Josh Rosner, a housing analyst. ‘The recognition of their problems is just ahead of us as they will default more slowly.’”

Economics and other scary stories

I'm back from my road trip. I was in Hawaii looking around at the state of their economy and the housing market there. I have made some observations that I will share in a later post.

A number of things happened while I was gone. One was the sharp decline durable goods orders in China resulting in volatile world trading markets. I still hold that spending in the US dropped off in October 2006 and the result as I speculated would be a reduction of orders for products made in China. It’s wasn’t precognition, it’s just simple math.

I don’t expect this to be a straight drop down however. With derivative markets feeling the effects of diminishing returns, it seems a good play would be to manipulate markets with those $-trillions to scare the hell out of you and me. Greedy buying by we small people on rapid up-swings and panic selling on rapid down-swings would result in a tidy and predictable profit for private equity clubs. If my guess is right, expect to see more of this type of volatility to come.

Another thing was the reporting, or lack there of concerning the restated GDP numbers for 4th quarter 06. As usual they were revised downward in February but the only report I heard about or could find was from an Australian newspaper. I’m not even sure what to make of that…

A third was the drop in gold prices on this recent bad economic news of February 28th 2007. Maybe I’m stupid but I expected the reverse reaction in gold prices. Being long on gold I got a spanking this week as you might guess.

And still more happenings. The Central Bank of Japan is set to raise interest rates! Will that action spell the end to the massive number of carry trades in play? Will this lead to a domino style unwinding in derivatives markets? The volatility in world markets would suggest that there is much fear about that very process taking place. I don’t know where the chips will fall in that event but you can bet we will all need a bath after they hit the fan!
Vern