New Home Sales Set to Plunge

New home sales plunged in May. Inquiring Californians are digesting the Bloomberg article entitled, “New Home Sales Set to Plunge in Former Bubble Markets”

Regarding San Diego:

Would-be buyers canceled about 40 percent of new home contracts in San Diego in May, up from 10 percent in April, the company said. Data on new signings in that city weren’t immediately available.

Sales indicators fell after April 30, the last day for homebuyers to sign contracts in time for a federal tax credit of as much as $8,000 for first-time purchases and $6,500 for certain “move-up” buyers. The deadline may have hurried customers to snap up properties when they otherwise would have waited, said Brad Hunter, chief economist based in Palm Beach Gardens, Florida, for Metrostudy.

That shadow inventory looks a lot bigger right now.

More CA cities talk of bankruptcy

Inquiring minds are reading Reuters’ article, “Bankruptcy talk spreads among Calif. muni officials”.

Who & why?

Antioch’s leaders earlier this month said bankruptcy could be an option for the cash-strapped city of roughly 100,000 on the eastern fringe of the San Francisco Bay area.

Antioch’s fiscal woes are standard issue for local governments in California: weak revenue from retail sales and property taxes is forcing spending cuts, layoffs and furloughs.

But cost-cutting measures may not be enough to keep Antioch’s books balanced, so its city council is openly discussing bankruptcy.

And going forward:

Orange County Treasurer Chriss Street would not be surprised if more local governments across the Golden State sound a similar alarm.

Street expects more talk of municipal bankruptcy across California because local government finances are in such dire shape — a situation underscored on Wednesday when a top finance officer for Sacramento County projected a worse-than-expected shortfall for the county of $181 million, which could force more than 1,000 layoffs from the county’s payroll.

“You don’t have the easy out of increasing revenue and you have a lot more call on services because of the economy,” Street said. “There’s no such thing as entertaining bankruptcy; there’s ending denial.”

This is going to be a long hot summer.

Worst May for Stocks since 1940

That’s right. Since before WWII. Another ‘First since’ in the negative.

From the WSJ, the reason:

A downgrade of Spain’s debt rating rekindled investors’ broader fears about European credit sparking a sharp decline in stocks in the last session of May, the biggest monthly drop since February 2009 and the worst percentage decline for May since 1940.

Here is the entire article:

Worst May Since 1940

Vallejo: Bay Area Community in Hard Times

The raw data shock any reasonable person looking. How could a bedroom community seemingly doing so well, slide so fast? First…the numbers:

Sixty percent of all borrowers in the Vallejo area owed more on their mortgages than their homes were worth in the first quarter of 2010, according to CoreLogic, compared with 24% of borrowers nationwide and 34% in California.

Property and sales tax revenue are expected to drop 18% and 10%, respectively, in the current fiscal year. The city’s general fund has plummeted 20% in the last two years.

Since filing for Chapter 9 in 2008, Vallejo came to symbolize to the state, if not the country, the fiscal abuses of Governments and their spending:

Since filing for Chapter 9 bankruptcy protection two years ago, this scrappy Bay Area bedroom community has come to symbolize the fiscal troubles — now faced by many cities — that helped push it to the brink: unrestrained spending, out-of-control pension costs and a burst housing bubble.

Has Vallejo now become The Example:

“I don’t think other cities look at us with a jaundiced eye because we’ve filed bankruptcy,” said Mayor Osby Davis. “Other cities … look at us and say, ‘Wow, we’re a step away from where you are. We just want to know, how are you getting through this?’ ”

The answer, so far, is not so well, although “the hardships visited on Vallejo residents are not because of the bankruptcy,” said Marc Levinson, the city’s lead bankruptcy attorney.

How are they getting through this:

…First came the break-in at the combination electronics repair shop and real estate agency. Then came the burglar bars on the store’s plate-glass window.

But Jimmy Mozaffar, owner of Data Days, sounds less angry with the criminals than he does with the crime-stoppers here in hard-knock Vallejo, the largest city in California history to file for bankruptcy.

The thieves made off with laptops, but it was the pared-down Police Department — which has lost a third of its officers — that stole Mozaffar’s peace of mind. When Mozaffar called the department to report the burglary last fall, a recording directed him to a website.

“Nobody came out,” he said. “They said they’d deal with it.”

For the entire article (and it is worth the read) go to:

Vallejo Hits Hard Times

Obama administration to cut spending? Yeah, right…

Does his mother even believe a face like this?

If you thought that the Obama Administration understands the need for cutting spending, or that they hear the electorate, you need to read the article on about Tax Cheat in Chief, Tim Geithner and his meeting with German counterpart, Wolfgang Schäuble, German finance minister. Full article is here at Geithner talks.

What Little Timmy was scheduled to say, and what he did:

Mr Geithner had been expected to deliver a forceful warning, particularly in Germany, of the dangers of causing a new global slowdown with harsh budget cuts. Instead he praised the “leadership role” of the Berlin government in organising the €750bn ($926bn) stabilisation package for the eurozone.

Little Timmy showed his ability to keep a straight face when he uttered:

Mr Geithner said he had discussed the entire range of future financial regulation with Jean-Claude Trichet, president of the European Central Bank, and Mr Schäuble, including control of derivatives, constraints on risk-taking and new rules to allow banks to fail.

How does he find his way home at night? New rules? It’s “new” to let a business fail? Unbelievable.

Europe heading for a meltdown? England a powderkeg?

Inquiring minds are thinking about the startling view of Mervyn King, the Bank of England Governor. Here is a taste:

“Dealing with a banking crisis was difficult enough,” he said the other week, “but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there’s no backstop.”

The example given by the writer isn’t any better:

In other words, were this a computer game, the politicians would be down to their last life. Any mistake now and it really is Game Over. Or to pick a slightly more traditional game, it is rather like a session of pass-the-parcel which is fast approaching the end of the line.

And why is this important to us:

The problem is that this has to stop somewhere, and that gasping noise over the past couple of weeks is the sound of millions of investors realising, all at once, that the music might have stopped. Having leapt back into the market in 2009 and fuelled the biggest stock-market leap since the recovery from the Wall Street Crash in the early 1930s, investors have suddenly deserted. London’s FTSE 100 has lost 15 per cent of its value in little more than a month. The mayhem on European bourses is even worse, while on Wall Street the Dow Jones teeters on the brink of the talismanic 10,000 level.

For the rest of this very important article, please click here:

Is Europe heading for a meltdown?

Only in Oakland…Pot Club Unionizes!

Two new union members on a company break?

Okay, I won’t take the cheap shot that I wondered if it is a binding contract since the signers were “under the influence”…oops, well…I guess I just did!

Only in The Bay Area. This was just too funny not to post. Click here: Oakland Pot Club Says, “Union Yes!”

And what union was wanting more fun and better parties:

100 employees at medical marijuana dispensary and education hub Oaksterdam University turned in their membership cards to join the United Food and Commercial Workers Union, Local 5.

Actually, it might be a very shrewd political move:

While it will help employees collectively bargain and resolve disputes with management, it also gives owner Richard Lee political allies with labor organizations.

Best quote of the year:

It may well be the first union pot shop in the country, if not the world.

California firsts just aren’t what they used to be, eh?

Who gets what with the Mortgage Interest Deduction

Inquiring minds are viewing an interactive map produced by the Tax Foundation and reading their findings. Please click here to the NYTimes article on “Mapping the Mortgage Interest Deduction”.

One quote to whet your appetite:

But taxpayers in California benefited the most from taking advantage of the deduction. Californians who deducted mortgage interest saved an average of $18,876, several thousand dollars more than the typical Maryland homeowner who deducted mortgage interest on the 2008 federal income tax return.

So what accounts for the difference? A direct quote from the report:

The large monthly mortgage payments that result are, with frequent refinancing, mostly interest payments, not payments on principal. This maximizes the amount deducted, and since these same high-income people are thrust into a higher marginal tax bracket by the federal income tax’s progressive rate structure, the deduction saves them substantially more.

US money supply plunges. A lot!!!

Inquiring minds are closely studying data that shows the US money supply (M3 to be specific) has plunged a lot in the last year if you think that the last time this happened was the 30’s. The tagline says is all:

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

Unfortunately, the opening 2 paragraphs are not any more reassuring:

The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

If this doesn’t scare you, then you need to wake up. This data is in line with what the direst analysts predictions. With all the talk about the US following Japan’s lead from a decade ago, it appears the this new data shows the US re-walking a path it walked in the 30’s under another Democrat President, FDR. Massive government stimulus is the exact opposite of what’s needed if we are in a deflationary bursting of a debt bubble. Cited in this article is yet another stimulus package:

Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to “grit its teeth” and approve a fresh fiscal boost of $200bn to keep growth on track. “We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on,” he said.

This is what was done in the 30’s under Roosevelt and has been shown to have lengthened The Great Depression by 7 years. Never fear, though, because the man who never saw the real estate bubble, our intrepid Fed Chairman Ben Bernanke, says not to worry:

Mr Bernanke no longer pays attention to the M3 data. The bank stopped publishing the data five years ago, deeming it too erratic to be of much use.

This may have been a serious error since double-digit growth of M3 during the US housing bubble gave clear warnings that the boom was out of control. The sudden slowdown in M3 in early to mid-2008 – just as the Fed talked of raising rates – gave a second warning that the economy was about to go into a nosedive.

Mr Bernanke built his academic reputation on the study of the credit mechanism. This model offers a radically different theory for how the financial system works. While so-called “creditism” has become the new orthodoxy in US central banking, it has not yet been tested over time and may yet prove to be a misadventure.

On the otherside:

“It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.

Paul Ashworth at Capital Economics said the decline in M3 is worrying and points to a growing risk of deflation. “Core inflation is already the lowest since 1966, so we don’t have much margin for error here. Deflation becomes a threat if it goes on long enough to become entrenched,” he said.

“…not much margin for error here.”

Makes me feel confident. NOT.

Oil higher

Oil futures rise on news of decreasing inventory levels at an important distribution point. For the full story, click here.

Crude-oil futures rose nearly 4% on Wednesday, as investors seemed to focus on the good economic news rather than on a bearish oil inventories report.

Inventories at the key Cushing, Okla. delivery point for West Texas Intermediate sold on Nymex declined by 324,000 barrels last week, but the total of 37.6 million barrels is still high and represents a 23% increase from this time last year, Evans said.

The main problem is that there is too much money chasing too little commodity. Sound familiar? Think housing. What has been shown time and again is that it is not the Evil Oil Companies controlling the price of oil, it is the investors. Too many investors with too much money are investing in a smallish market (comparative).

Some of the best evidence of this is that Exxon-Mobile has staked the future of their company on $30-50 per barrel oil by selling much of its leases about 3-4 years ago.