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“The State of New Jersey Can’t Print Money”

On June 1, 2010, in Debt, Our Culture, by Tim

Spotted over at The Daily Bail a short time ago, New Jersey Governor Chris Christie tells an angry schoolteacher, apparently unhappy with the latest round of education budget cuts, that “unlike the United States of American, the State of New Jersey can’t print money”.

You have to wonder what it’s going to look like in the U.S. when public sector spending cuts reach the point where government workers are protesting in the street – the rest of the world will look at us and see how fat many of us are and, most likely, have a good chuckle.

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A “Homemade Mortgage Modification”

On June 1, 2010, in Housing, Our Culture, by Tim

Today’s must-read housing story in the New York Times by David Strietfeld shows just how quickly cultural norms are being cast aside in favor of doing what makes sense, that is, given the situation that many “homeowners” now find themselves in.

Owners Stop Paying Mortgages, and Stop Fretting

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

After that 60 Minutes segment a couple weeks ago, the appearance of more and more stories like this one are likely to make the situation snowball and, when you think about it, everyone’s probably just fine with that for the time being.

(more…)

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Manufacturing Sector Continues to Expand

On June 1, 2010, in Economy, by Tim

The Institute for Supply Management reported that the U.S. manufacturing sector grew for the tenth consecutive month, the factory index remaining well above the 50 level that delineates expansion from contraction, down only slightly from 60.4 in April to 59.6 in May.

The new orders component, an important leading indicator, remained quite strong, unchanged from 65.7 and the employment index rose modestly, up from 58.5 to 59.8, signaling more job growth in the manufacturing sector in Friday’s labor report.

As shown above, the current expansion has been much stronger and has now lasted two months longer than the one back in 2002 that had a relapse in 2003. Signs of a slowdown in this sector in the months ahead – one of the few pillars of the current “recovery” – will no doubt add to investor anxiety about the future of the U.S. economy.

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Always Look on the Bright Side…

On June 1, 2010, in Housing, by Tim

If this were anywhere other than Michigan, alternate responses to this cheery report by local realtors might be in order, but it’s hard to kick a whole state when it’s down.

Real estate market may be on the cusp of a turnaround

The federal tax credit program for home buyers helped fuel the housing market in April, leaving local Realtors cautiously optimistic that a sustained recovery might follow. In Southwest Michigan, sales were up 15 percent over a year ago.

“The market continues to have a large selection of homes available at very attractive prices, and interest rates are still at historic lows,” said Gary Walter, executive vice president of the Southwestern Michigan Association of Realtors Inc.
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Realtors say the upswing was expected because of the tax credit inducement, and there might be some temporary fallback in the months immediately after it expires. But they say other factors, such as stabilizing home prices, an improving economy and low mortgage interest rates also are supporting the market.

In Southwest Michigan, the percentage of sales that were bank-owned or foreclosed homes peaked at 50 percent in February, dropped to 40 percent in March and crept down to 38 percent in April.

Walter said that in 2009, roughly one-third of sales involved foreclosed homes.

“Hopefully we can work through the inventory of foreclosed homes and reduce this percentage as we go,” he said.

Cue the music.

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The Mauling in May

On June 1, 2010, in Bonds, Commodities, Stocks, by Tim

Jim Picerno at The Capital Spectator files this report on the damage done to financial markets during the month of May, a trend that looks set to continue this month.

Stocks around the world led the decline, with foreign developed markets posting the biggest loss among the major asset classes. What changed the sentiment so sharply in May? A renewed fear of deflation was one catalyst. Investors are increasingly focusing on the growing burden of debt that weighs on the global economy, particularly in the mature countries of Europe, Japan and the U.S

Of course, gold is missing from the list – up 3.0 percent in May and almost 11 percent higher for the year. There are more May results in this Bloomberg report on hedge fund performance – apparently the gains on John Paulson’s massive gold holdings were not enough to offset losses elsewhere.

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Tuesday Morning Links

On June 1, 2010, in Uncategorized, by Tim

TOP STORIES
Stocks Fall as China Manufacturing Growth Slows – Bloomberg
Answers on Credit Ratings Are Long Overdue – Sorkin, NY Times
Eurozone banks could be hit by £165bn writedowns, says ECB – Telegraph
Chinese Official: Housing Risk Greater Than in US, UK Pre-Crisis – Naked Capitalism
Commodities’ Biggest Drop Since Lehman Bear Signal – BusinessWeek
American investors: Predictably stupid losers – MarketWatch
Israel Falls into the Trap – Spiegel Online
The Mauling in May – Capital Spectator

Have these these links delivered to your inbox every weekday.

MARKETS/INVESTING
Oil falls to near $72 as stocks, euro fall – AP
Gold climbs above $1,220 on debt concerns – Reuters
Hedge Funds Post Biggest Losses Since Lehman – Bloomberg
Gold: The Ultimate Fiat Currency($) – Barron’s
The Achilles Heel of Markets? – HuffPo
Oil and Red Ink – Hussman Funds

(more…)

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