Shilling: House Prices Will Drop…A Lot

An Illusion. It's as simple as that.

Inquiring minds are reading about Gary Shilling and him updating his October prediction that house prices would fall another 20%. In the two months since that prediction, house prices have once again started to slide.

Below, Mr. Shilling outlines his ideas on the recent drops are just the beginning:

Last spring, many believed that not only was the housing collapse over but that a robust rebound was underway. Investors were crowding into foreclosed house sales and bidding up prices in California, often the bellwether state for new trends. The tax credit of up to $8,000 for new homebuyers that expired in April spurred buyers and promised to kick-start housing activity nationwide. TheHomeAffordable Modification Program was trumpeted by the Administration to help 3 million to 4 million homeowners with underwater mortgages by paying lenders to reduce monthly payments to manageable size and then paying homeowners to continue to make those payments.

But then a funny—or not so funny—thing happened on the way to housing recovery…

Please click on this link to see: Mr. Shilling’s presentation.

CA Strips Homeowners of Rights

Inquiring minds are shaking their heads at just how bad legislation is in The (Formerly) Golden State. Today’s example is laid at the feet of Gov. Arnold Schwarzenegger and the Democrat controlled legislature for California Senate Bill 94 which imposes incredible strong sanctions on a homeowner yet doesn’t restrain banks in the least:

“The State of California has made it a crime punishable by one year in jail, a fine of $10,000 and professional discipline for an attorney to represent a borrower in a dispute with a bank regarding a ‘loan modification or other form of mortgage forbearance,'” the complaint states. “The State of California imposes no similar restriction on the ability of a bank to hire a team of attorneys.”
Duenas says that the bill, which was intended to stop loan modification consultants and real estate agents from charging advance fees, was enacted after Schwarzenegger pressured lawmakers to add attorneys to the list.
“Gov. Schwarzenegger’s pressure on state legislators resulted from intense lobbying by several groups, including the banking industry, which feared that attorney representation of borrowers would prevent banks from having absolute control over their legal relationship with the borrower and the consequences of that relationship,” the complaint states.

Since the law was passed no attorney has been willing to take such a case.

This is yet another example of how Democrats and some Liberal Republicans continually do the bidding of Big Business. People have to grow up and understand that if a group wants to control anything in people’s lives, it doesn’t matter if you are for it or not. Because that group will turn their attention to you and control your life soon enough.

WaPo Staffer Explains How Cons Smarter Than Libs!

Inquiring minds are watching a video at Breitbart.tv where a Washington Post staffer explains to the world how Liberals are much less intelligent than Conservatives. In the video, he says that the US Constitution is “impossible to understand” because it was written over “100 years ago”. Conservatives don’t seem to have a problem with understanding what the Constitution. Ergo, Conservatives are more intelligent than Liberals/Progressives/Socialists (AKA Democrats).

Seriously, you can’t make this stuff up:

Here is the link: WaPo Staffer Explains

I guess this explains all the screwy decisions out of liberal Supreme Court Justices. They don’t understand the US Constitution.

Don’t you just love it when Liverals/Progressives/Socialists try and say that FoxNews is just too partisan to be taken seriously?

The Power of Unions: Average NYC Stagehand Salary

"This isn't America anymore, Toto."

Inquiring minds are now understanding why Broadway play tickets are so expensive…it’s the salaries of the ‘little’ people:

Columnist James Ahearn of New Jersey’s Bergen Record has a great column today on, of all things, the stagehands at New York city’s top performing arts venues such as Lincoln Center and Carnegie Hall. These are not highly skilled or technical jobs but take a gander at how much they are paid:

At Avery Fisher Hall and Alice Tully Hall in Lincoln Center, the average stagehand salary and benefits package is $290,000 a year.

To repeat, that is the average compensation of all the workers who move musicians’ chairs into place and hang lights, not the pay of the top five.

Across the plaza at the Metropolitan Opera, a spokesman said stagehands rarely broke into the top-five category. But a couple of years ago, one did. The props master, James Blumenfeld, got $334,000 at that time, including some vacation back pay.

Ahern also notes that the top paid stagehand at Carnegie Hall makes $422,599 a year in salary, plus $107,445 in benefits and deferred compensation. So why such exorbitant pay? You probably already guessed that a union is involved…

And then another question needing to be asked: How much of these salaries is because of government subsidies to the arts?

China’s Real-Estate Frenzy

Is real estate thought to be toys by the Chinese?

Inquiring minds are reading the Wall Street Journal for their coverage of the China real estate frenzy that is occuring:

Last week I sold an apartment in Beijing for more than 2.5 times what I paid for it five years and three months ago. When I asked the buyer why he was optimistic about real estate, he explained that land was limited in Chinese cities and government policies would keep the market going up.

So far that argument has proven right. Understanding government policy has long been the key to making money in China’s property and stock markets. The atmosphere at the Beijing tax and land bureaus brought to mind California during the gold rush.

It’s impossible to say definitively that a market has strayed into bubble territory until after the collapse. But prices rising out of the reach of average buyers is one indicator. Housing prices in the U.S. peaked at 6.4 times average annual earnings this decade. In Beijing, the figure is 22 times.

There is no decimal point missing and it is not a typo. Real estate really is selling for 22 times average annual earnings.

Since many people pay for homes in cash and Chinese banks supposedly only lend a prudent amount to buyers, it is said that there is little risk of China having a real estate correction. So little, as a matter of fact, that if the market falls by a third, they will still be above water. Many think this immunizes the market (and in turn the banks) from a “bubble”. However, what appears to be happening is the Chinese verzion of a “Martingale”.

Basically, a Martingale is a system believed to be ‘can’t miss’ moneymaker that has an unforeseen or underestimated risk factor. Think of Roulette and the idea of doubling your bet each time you lose. Many people mistakeningly think it is a can’t miss way to make money. Unfortunately, newbie players forget that those two green numbers come up just as often as any others and throws the odds of this betting system over to the house. And the kicker is, statistically speaking, the Martingale player will actually lose much more than the non-system player.

In “financial systems”, AKA economic policy”, this is caused by not backing the observer’s perspective out far enough to see outside the model’s known “universe”. Today we see this mistaken policy in that where people are actually saying a nation’s debt never has to be paid off. Before that it was the idea that real estate would continuously go up. At the beginning of the millenium it was the idea that internet stocks were going to continually go up.

Where is the problem in this China Martingale?

The wealth itself comes from the credit machine that drives China’s investment-led economy. Fixed-asset investment grew 23.5% this year, and it is forecast to grow 20% next year. After 2008, Beijing paid lip service to the need to rebalance the economy in favor of consumption instead of investment. Meanwhile it doubled down on investment, with a stimulus package for 2009, equivalent to 15% of GDP, that was made up mostly of bank loans. The torrid pace of lending continued this year.

And guess what? The Chinese have even come up with a unique self-blinding machine:

Pushing loans out the door throws off large amounts of cash to the managers and cadres involved, which they then use to buy apartments. For instance, local governments depend on the revenue from land redevelopment, and the officials then take a cut and buy property. As long as the music keeps playing, everyone keeps dancing.

In the past, when China could depend on growing export markets, technocrats in Beijing were able to keep speculative frenzies in check with periodic crackdowns. Moreover, with ample supplies of cheap labor, the real economy was unlikely to overheat. The main tools to regulate growth were administrative: government orders to banks to stop lending and to companies and local governments to halt projects. And that’s what Beijing is still trying, increasing banks’ reserve ratios and cutting lending quotas.

But this time nobody is listening. Local governments and banks have set up off-balance sheet vehicles to conceal loans and keep the spending boom going. Fitch Ratings estimates that not only did banks exceed the central bank’s 7.5 trillion yuan ($1.1 trillion) cap on lending for this year, they made an additional three trillion yuan of these shadow loans.

Greed is the same the world over.

Italy: Cost of Debt Approaches Red Zone

Although this graph lacks sexy Italian styling it gets the job done.

Inquiring minds are watching Italy as their cost of their debt appoaches critical levels. Italy is Europe’s biggest debtor and may slip from the eurozone’s stable core into the high-risk group on the periphery:

The spike in rates came as money supply data released by the European Central Bank showed that real M1 deposits have collapsed at a rate of 2.8pc over the last six months in the EMU bloc of Italy, Spain, Greece, Ireland and Portugal, even though they are rising in northern Europe.

“This is comparable with the decline in early 2008 just ahead of the plunge into recession,” said Simon Ward from Henderson Global Investors. “The eurozone periphery is locked into a ‘double dip’ that will undermine fiscal consolidation.”

The fiscal instability is ripping apart any hopes of European unity:

The poor auction in Rome may be a warning sign that EU leaders offered too little to restore confidence at their Brussels summit two weeks ago.

German Chancellor Angela Merkel vetoed the creation of eurobonds or any serious move towards fiscal union, and shot down calls for an increase in the eurozone’s €440bn emergency loan fund. The ECB has so far refused to step in to the breach with overwhelming action.

Willem Buiter, Citigroup’s chief economist, said the response had been “woefully inadequate”, raising the risk of fresh bank failures and a wave of sovereign defaults next year. He said the EU authorities may need a mix of measures worth up to €2 trillion to stop the rot.

And the outlook does not look very promising either:

Italy’s M1 contraction began later than elsewhere in southern Europe but is now accelerating. M1 typically gives advance warning of economic shifts by six to nine months.

Mr Ward said signs of recovery in the ECB’s broader M3 money data is less reassuring than it looks since the gauge was temporarily boosted by flight to liquid assets on EMU debt worries.

The dominoes continue to fall across Europe.

NEWS FLASH! High State Taxes Force People To Leave

Inquiring minds are looking at Tax Prof Blog to read Paul L. Caron’s new article showing how high state taxes make people leave:

Of the seven states that don’t have a personal income tax, four (Texas, Florida, Nevada and Washington) account for eight of the 12 seats apportioned to the fastest-growing states.

New York and Ohio lost two more seats. Other losers — down one each — are Massachusetts, Missouri, Michigan, New Jersey, Pennsylvania, Illinois, Louisiana and Iowa. What do they all have in common? High taxes. …

The states that lost seats ranked an average of 24th in taxes and had an average tax burden of $2,267 per capita. … The states that gained seats ranked an average of 39th in taxes and had an average tax burden (weighted) of $1,788 — 27% lower than the losing states.

Pretty much an open and shut case, which is not good news for The (Formerly) Golden State. Look at this table from Mr. Caron’s April 7th post from earlier this year:

There is no way that California is really #12 on the list. How much higher on the list would The (Formerly) Golden State be if it would raise taxes to cover its burgeoning debt?

UK: Retailers Boxing Day Sales Disappoint

Inquiring minds are looking across The Pond to our cousins in the UK and seeing the dissapointing sales on Boxing Day. The Retailers fear a very unhappy New Year:

The total number of shoppers fell by 22.8pc nationally on the day after Christmas Day, although stores in London attracted 11.4pc more visitors, Synovate said.

Shopper numbers were down by as much as 27pc in southwest England and by 19.9pc in eastern England.

Britain’s retailers are striving to sell as much as possible over the Christmas and New Year holiday period, since many expect sales to decline next year due in part to a rise in Value Added Tax (VAT) which takes effect on Jan. 4.

Nearly two-thirds of retailers expect sales next year to fall compared with 2010, as weak consumer confidence and inflationary pressures come to bear, according to a survey conducted by the British Retail Consortium (BRC).

In a bearish prognosis for the retail sector, just 18pc of businesses expect sales to improve in 2011, compared with 64pc who expect a deterioration.

Sounds eerily like what is happening on the east coast:

Shops have already been hit by the appalling December weather, Synovate reporting yesterday that retail forecasts for the month have undersestimated the drop in customer numbers caused by the snow. The research company had previously estimated a 4pc drop in shoppers, but footfall between December 22 and 24 was down 6.1pc compared with last year.

“Retailers expect a difficult December to be followed by a tough 2011,” said Stephen Robertson, director general of the BRC. “They believe the VAT rise will contribute to higher prices and, with fears about government cuts and the wider economy, people will be put off spending.”

2011 is shaping up to be a very dissappointing year in all of Europe. With the bombs going off in Greece, and with it the violence sweeping across Europe reaches an entirely new level.

CA: Knowing What Is Important (Yeah…Right)

Public Enemy No. 1: The 100-watt incandescent light bulb

You gotta give it to California…if there is a wrong headed, goofy stance; then that is what California will choose.

Now, instead of figuring out how to solve its incredible debt problem, California plays Nero by fiddling away with contrived issues as the fire of debt rages out of control. This time it is the banning of incandescent light bulbs:

California, will start phasing out the 100-watt incandescent light bulb on Jan. 1, 2011. By the beginning of the year 2012, it will be gone from sale in stores. Specialty lights that use less than 40 watts and more than 150 watts, and three-way bulbs are exempt, but will later be required to use less energy.

California wants to get a head start in banning this bulb because they claim state regulations will reduce energy consumption.

Thanks to President George W. Bush for signing the Energy Independence and Security Act, incandescent light bulbs will be phased out of the entire country by 2014.

We’re following the same path as Australia, Ireland, and Cuba (!) who have banned the 100-watt incandescent bulb.

Banning light bulbs, saving sea otters, and bullet-train tracks (no railcars, no stations). These are the things California spends their money on. But the $500 Billion debt in unfunded public employee pension liabilities goes untouched.

Makes perfect sense, doesn’t it?

Free Is Just WAY TOO Expensive

Inquiring minds are looking what Thomas Sowell has just written in his newest column. Usually we, at Surviving California, stay away from well known columnists because if they are liked, the reader already about them.

This is definitely an exception.

In ‘Free’ Lunches Are Killing Us With The Cost, Mr. Sowell makes some rather brilliant points:

They keep saying that there is no such thing as a free lunch — and politicians keep on getting elected by promising free lunches.

Such promises may seem to be kept, for a while. There are ways the government can juggle money around to make everything look OK, but it is only a matter of time before that money runs out and the ultimate reality hits, that there is no free lunch.

We are currently seeing what happens, in fierce riots raging in various countries in Europe, when the money runs out and the brutal truth is finally revealed, that there is no free lunch.

You cannot have generous welfare state laws that let people retire on government pensions while they are in their 50s, in an era when most people live decades longer.

In the U.S., that kind of generosity exists mostly for members of state government employees’ unions — which is why some states are running out of money, and why the Obama administration is bailing them out, in the name of “stimulus.”

Once you buy the idea that the government should be a sort of year-around Santa Claus, you have bought the kinds of consequences that follow.

Take the time to read the entire aritcle by following the above link.