You say yes, I say no
You say stop and I say go, go, go
– The Beatles
We keep saying the same thing here at The Daily Reckoning. Not because we lack imagination… It’s because things are still the same.
“Outlook for home prices grows darker,” says The Wall Street Journal.
Well, yes. Much darker. Bloomberg:
Sales of US New Houses Plunge to Record Low as Credit Ends
June 23 (Bloomberg) – Purchases of US new homes fell in May to the lowest level on record after a tax credit expired, showing the market remains dependent on government support.
Sales collapsed an unprecedented 33 percent from April to an annual pace of 300,000, less than the median estimate of economists surveyed by Bloomberg News and the fewest in data going back to 1963, figures from the Commerce Department showed today in Washington. Demand in prior months was revised down.
Exceeds Drop Projected
Sales were projected to drop 19 percent to a 410,000 annual pace, according to the median estimate of 76 economists surveyed. Forecasts ranged from 300,000 to 530,000. The government revised April’s purchase rate down to 446,000 from a previously reported 504,000.
Hey, what happened to that $12 trillion worth of stimulus spending, guarantees and bailouts? We said it wouldn’t work from the get-go. They said ‘yes, it will.’ We said ‘no, it won’t.’ Can we have our money back?
Last week’s report showed that used or existing houses were not selling. Now we find that new houses are selling even worse. The tax credit doesn’t really expire until the end of this month. But you can’t build a new house in 4 weeks, so the May new house data reflects the end of the credit.
You’ve heard the expression, ‘bad money after good’? Well, stimulus money was bad money from the beginning. It headed down the drain the minute it left the bank. Trillions of dollars wasted. And for what?
That’s the interesting thing. The feds couldn’t really stop the process of de-leveraging. They could make-believe…with federal spending projects that looked a little like real work…and handouts that looked like real income.
But all they could really do was rob Peter to pay off Paul…or rip off them both with debts they couldn’t pay and phony money they couldn’t back with anything real.
All they did was make sure some people were hurt worse than others. Shareholders, for example, lost trillions as stocks fell. The market has recovered much of the loss, but US stock market investors are still out more than $3 trillion. Homeowners lost big, too. Clip 20% to 50% off the value of America’s housing stock and you’ve erased as much as $10 trillion. We don’t know yet. The housing market moves slowly. It discovers what things are worth…but only by fits and starts.
After the latest housing news, our guess is that house buyers are going to squeeze their nickels even harder. And house sellers are going to be even more desperate. Between the reluctance of the buyers and the eagerness of the sellers, house prices will probably come down another 10% to 20% – maybe more – before they finally reach bottom.
But thanks to the generosity or stupidity of the US government, bondholders have done pretty well. Instead of letting the whole capital structure collapse, so that it might be rebuilt on a more solid foundation, the feds bailed out the bondholders…who just happen to be very cozy with Wall Streets big banks and federal authorities.
Then, of course, the feds congratulated themselves. They avoided a disaster. They saved the world. They brought the world economy back from the brink of catastrophe. At least that is how they and the press spun the story.
For our part, we would have preferred to see the whole thing go over the edge. Not that we know what kind of catastrophe would have resulted. But we wanted to find out. And whatever it was, we doubt that it would have cost $12 trillion.
In fact, the price would have probably been only a fraction of that amount… For every bondholder who would have taken a loss there was a debtor somewhere who would have been relieved of a burden he couldn’t pay. In the present case, the debtor was relieved of his burden. The feds took it over from him. Now, it’s on all our backs!
And more thoughts…
Yesterday, we went over to Mondawmin Mall to renew a driver’s license. Mondawmin is in a part of Baltimore that is 100% black.
We drove by abandoned wrecks…and some tidy neighborhoods with attractive row houses.
Blacks seem to have disappeared in America. In the ’60s and ’70s, they were the center of attention. How come they hadn’t integrated better, people wanted to know? How come there was such an income gap? What kind of racism still lurked in American society and how could we get rid of it?
But then, Barack Obama was elected. Now, no one seems interested in racism…or in blacks. ‘If a black man can be elected president, the rest of the them can stop their bellyaching,’ people seem to say. ‘If they don’t succeed, it’s their own damned fault.’ At least, that seems to be the temper of the times.
Instead, the media seems more interested in Hispanics. One of them is shot dead at the border. A town passes a law preventing illegal immigrants from working. The great state of Arizona reserves the right to ask for their papers at any moment.
“Are you a citizen?” says the policeman. “Prove it.”
Blacks and whites have been zombified. The brown man has not. Blacks and whites have the right papers. They get their checks, and their free food, and their government jobs. They carry the phone number of a tort lawyer in their pocket and hope someone hits them.
Illegal aliens are practically the only real Americans left. They don’t have any contact with the zombie administration. (We don’t know that this is true, by the way…we’re just imagining…) They don’t register to vote…or to get food stamps…and they don’t complain when their employers harass them. They’re afraid of being deported!
But back in the Mondawmin Mall the clerks were black, the customers of the Maryland Department of Transportation were black. Everyone was black but your editor. Of course, your editor grew up in the tobacco fields. In some ways, he is probably more black than most of the blacks at the mall, even though he is lilywhite. Our father came from an Irish family; they were fairly recent immigrants from Donegal. But our mother’s family had been in Tidewater Maryland since the reign of Queen Anne. Families – black and white – that have been in southern Maryland for 3 centuries are almost all related to each other. When we were growing up, a distant cousin, Geoffrey, lived across the road in a tenant shack. We weren’t supposed to know or mention that he was a cousin. He was black.
But Geoffrey grew up, went to medical school and became a doctor, now practicing in North Carolina. We’re probably as big an embarrassment to him now as he was to us then.
Later, we moved to a Baltimore inner city. It was the lure of architecture that led us thither – big beautiful houses built by Jews in the 19th century. We bought one in 1983 for $27,000. We fixed it up and lived there for 10 years.
One of our favorite neighbors went by the name, Simms. That he had a first name or a last one, we were sure. What they were we never discovered.
Simms was reliable. He would get rip-roaring drunk every Saturday night. In warm weather, he would get together a group of cronies and sit on the stoop and sing.
“You are sooooo beautiful…” was one of his favorites. As he got drunker and drunker he would forget more and more of the words. ‘You are so beautiful’ was all he was left with at the end. Then, he’d fall dead asleep in a wheelbarrow so it was easy to cart him out of the way.
But in the ’80s the inner city didn’t get better. It got worse. And when our children started growing up, we realized that we couldn’t let them out on the streets. It was too dangerous. So we moved out.
The people in the Mondawmin Mall were all polite. We wouldn’t say that they were efficient. Efficiency did not seem to be something they were interested in. Many were probably unemployed or marginally employed. Time is not that precious when you are out of work. A process that should have taken 5 minutes dragged out for an hour.
The young men all seemed to have tattoos…and pants down below their derrieres. One had to pull up his pants to keep them from falling around his ankles.
The women often had tattoos too. Almost all the women over the age of 25 were huge. Many had clothing styles and hairstyles that your editor had never seen before.
We took a number and sat down. From what we could figure there were 157 people waiting ahead of us. Another number was called every minute or so. It was going to be a long wait.
Next to us sat a big man who looked like he might be a bricklayer or a mover. He was sturdy…with thick legs and arms. On the other side, a woman and her daughter kept up a conversation. The daughter was there to get a learner’s permit. Their accents were so strong, we had a hard time following the conversation. These were not Southern Maryland blacks. These were Baltimore ghetto blacks with an accent of their own.
Mother: “Get off dat phone…you bin talkin’ all afternoon.”
Daughter: “I’m talkin’ to daddy.”
Mother: “Well, tell that son of a b*** to give me some money.”
Daughter: “You gonna haf to tell him dat yosef.”
for The Daily Reckoning Australia