-- Posted Monday, 18 December 2006 | Digg This Article
Baltimore, Maryland
Monday, December 18, 2006
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*** D.C. builders have begun selling houses like Wal-Mart sells soap…home ATMs not refilling as quickly as they used to…
*** If you've got $2,500, you're richer than half the people on earth - but Bill Gates is still richer than you…
*** The best way to feel rich and happy this Christmas season is very simple: just move to a very poor country…and more!
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D.C. builders have begun selling houses like Wal-Mart sells soap.
The Washington Post tells us that Mid-Atlantic Builders in Rockville are offering buyers the "Lowest Price Guarantee." He'll adjust the sales contract downward if the price falls between the time the customer signs an agreement and 45 days before the settlement.
Doesn't sound like much protection to us…but we didn't read the fine print.
"We've given up trying to sell that house we bought in Delray Beach," said a source on Friday. "Of course, we could sell it if we wanted…but it would mean giving it a steep discount. There are about ten houses for sale on the same street."
It took years to build up the housing bubble in places like South Florida. It will take years to let the air out. Houses aren't marked to market immediately, like stocks or copper. It takes time for buyers and sellers to adjust to new market conditions. At first, the buyers hesitate. Then, the sellers dither. Then, when weakness becomes more obvious, a few buyers come forward…hoping for a bargain in what they believe is a market still on its way up.
The government and the realtors seem to believe it is, too. New numbers purport to show that house prices are still rising. In July, house sales fell 21%…but not according to the Commerce Department, which claims that sale prices actually rose 0.3%. The NAR, meanwhile, said they went up almost a full percentage point.
What gives?
Well, the figures probably don't take into account the incentives sellers are now offering. And they surely don't take into account the huge number of houses that are simply not selling because owners are unwilling to take the loss. Why? Because they are still not convinced the slump will be deep or long lasting. This delays the impending bubble burst…and keeps the press reporting only the part of the reality everyone wants to see - the part that says that, as of July, those who were able and willing to sell were apparently still seeing slight gains.
Meanwhile, this chart tells another story - about homeowners' collapsing equity. As long as the current trend continues, owners will own less of their own homes every month. They will be less willing to sell at a loss…but many will be more desperate to do so.
The "home ATM is not refilling as rapidly as it has in recent years," says Paul Kasriel of Northern Trust. For the last few years, U.S. consumers just walked across the living room to the invisible ATM machine in the corner and 'took out' some of their growing home equity. Now that equity is no longer growing at the rate it was - if at all - the ATM machine doesn't work as well as it used to. Many are still 'taking out' equity…but now it's coming out of what they have left after house prices go down, not what they are gaining from a rising market.
Mortgage equity withdrawal (MEW) has faltered, to an annualized rate of $214.2 billion in the third quarter of this year after peaking at $730.5 billion a year earlier. Of course, this means that consumers have less money to spend. And less consumer spending should begin to pinch sales…and profits.
Not that Wall Street even blinked. Last week, the Dow hit new records. Of course, it's still down in real terms…investors might as well have put their money in a sock over the last seven years. You'd think they'd get tired of it. You'd think they'd notice what is happening to the consumer. You'd think they'd wake up one of these days in a panic. But so far, no one has.
Which is why we continue our Crash Alert.
When everybody is thinking the same thing, nobody is thinking. The VIX, which measures investors' fears of a crash, is near record lows…while stock indices, property, art, commodities, and just about everything else are at record highs.
Nothing may crash ever again. Never. Nothing but blue skies and soft landings from now on. Yes, dear reader, we could all live happily ever after, forever and ever, Amen.
But when you are passing through an airport and you find crash insurance offered at record low prices…why not buy some? Who knows, maybe your spouse will get lucky.
[Ed. Note: That's the same sort of thinking we've put into the Agora Financial Reserve, a collection of our newsletters and trading services. We don't pretend to know what's around the corner - but it never hurts to make some preparations. And with the Reserve, you'll get all of our services for life - and for a ridiculously low price. Click on the link below for all the details:
The Agora Financial Reserve - Open for a Limited Time
More news:
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Chris Gaffney, reporting from the EverBank world currency trading desk in St. Louis…
"The dollar has continued to rally over the weekend, with the dollar index moving back above 84 for a while in early European trading. We believe this sell off in the currencies was healthy for the market, as the dollar had slipped too far, too fast."
For the rest of this story, see today's issue of
The Daily Pfennig
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And more miscellaneous:
*** Here, a friend reports on one of Europe's most successful public companies.
"Bill, you might be interested to know that Max, our oldest son (23), who is now on an internship in India, just completed his end of studies memoir on the history of the share value of the Société Générale de Belgique which had never been compiled.
"This is a very key company, because when it was finally taken over by Suez a few years ago, it had over 150 years of a very successful existence, had controlled up to two-thirds of the Belgian economy, and had been heavily invested in Europe, Africa, Asia, the United States, etc. So it reflected the economical development of Europe over a very long term.
"What he found out was quite surprising: If you adjust the share value of the latest trading by inflation, splits and new issues, you find that the shares went from 100 Belgian francs in 1827 to only 101 BEF in 1988!! No capital gains at all in real terms in more than 150 years!! But there had been a steady dividend of approximately 4% right through the years, including the depression, the wars etc…which is not bad at all."
*** One thing we noticed in India might fit into the 'you think you have problems?' category. There are hundreds of millions of people in that country with nothing at all. They work day by day at little jobs just to get enough to eat. At night, they sleep on the streets. And, as an Indian friend reminds us, these are in some ways the lucky ones. They can work. They can support themselves. And they can imagine that better times will come - when they will earn, maybe, $5 a day!
Being 'rich' is easier than we think. You just have to get away from Miami or Los Angeles. If you live in some countries, even an income of $5,000 a year will make you feel like a relatively rich man. In fact, a new study by the United Nations says that a net wealth of $2,200 will put you in the richest half of the world's people. If you can scrape together $61,000 in net assets, you are in the top 10%.
What does it take to be in the top 1%? Just $500,000.
The study found that the three richest people in the world - Bill Gates, Warren Buffett and Carlos Slim Helu, the Mexican who owns the telephone system - have combined net-worths higher than the total assets of the 48 poorest countries on earth.
And something else interesting: Millions of Americans are actually poorer, in terms of their net wealth, than the people who sleep on India's filthy streets. The poor in India have nothing. But many of America's poor - and this is true for other rich countries too - have less than nothing. They are in debt, often by thousands of dollars. India's desperately poor people, on the other hand, have no credit cards.
Another interesting item: the U.N. study puts the total U.S. net worth at about $40 trillion. We don't know where this figure came from. But we will guess that it doesn't include the U.S. government's "fiscal gap" - of about negative $65 trillion. If those numbers were included, the entire United States would have to be considered poorer than the lowliest, most miserable beggar on the streets of Calcutta.
How can you feel rich and happy this Christmas season, dear reader? Very simple. Just move to a very poor country.
The figures were sent to us by our colleague, Julia Guth. Julia meant to remind us how lucky we were…and suggest another way we might feel richer and happier these holidays. Julia sponsors a non-profit health clinic in Nicaragua. The clinic takes care of thousands of people…and gets no government funding. She suggests that maybe our Dear Daily Reckoning readers might want to help out. If so…
The Roberto Clemente - Rancho Santana Clinic
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The Daily Reckoning PRESENTS: The Brits have showed us that there's one surefire way to avoid the declining standard of living in America: live with your family. So if you manage to make it through the holidays without "accidentally" locking your Great Aunt Ida in the basement, this may be something you want to look into. The Mighty Mogambo explains…
MOVING BACK HOME FOR THE GRAVY
by The Mogambo Guru
For those of you who think I am just another stupid, paranoid, lunatic, gold-bug, gun-nut, whack-o, pretty-boy pervert who over-reacts to everything, and that I would willingly gun down my own grandmother if she made any suspicious moves towards my stash of gold and silver, I say "Touché!" But even you have to agree that, even at my most outlandish, I am behaving appropriately to the roaring inflation all around us.
And not only us, but also for the Brits, as, according to Telegraph.co.uk, "The cost of living for many British households is up to four times the Government's published rate of inflation." Four! Real, wallet-emptying inflation is up to 400% higher than the lying British government is admitting, which is bad enough, as even "official" inflation is running at a hefty 2.4%!
They rudely ignore my handy statistical-oriented editorial blurb (the little limey snots!), but go on to say that "millions of families are experiencing inflation far beyond the official rate of 2.4%, new research suggests." In fact, they say that it "shatters the illusion that the Consumer Price Index - used by the Bank of England to set interest rates - represents the true cost of living as experienced by many households."
As you would expect, those on fixed incomes get the biggest whack to the wallet, with annual "inflation rates of almost 9%" for pensioners.
"Hard-up families," they go on to report, "getting by on £20,000 a year, saw their costs increase by 4.6 percent - almost twice the national average and well above the annual rate of wage increases, 3.9 percent."
The article wimps out by not mentioning that these are the same stupid people who happily voted, year after year, decade after decade, for the economically illiterate elected officials who allowed their central bank to cause this to happen to them. And I'll bet very few of them tuned into the Daily Mogambo U.K. Radio Show (DMUKRS) this week, which is too bad, as it was a big part, the major part, of my Mindless Mogambo Rant (MMR) editorial comment, in which I heaped loathing disrespect on the British variant of Earthling moron, and laughed cruelly at their pathetic whining about their miserable, yet so richly, richly deserved, plight.
More importantly, of the "news-you-can-use" kind, you should immediately move back home with your parents while you are still young enough, and strong enough, to beat the hell out of anyone, like your parents, who stand in your way, as "the increasingly large number of young Britons living at home with their parents - and not paying mortgages or bills - experienced deflation of 2.1 percent, since many of the items they spend their money on, such as clothes and electrical goods, are falling in price."
Deflation! These irritating little brats are experiencing a rising standard of living, while ours is declining! So, move back home today, and get some of that standard of living gravy for yourself!
The International Herald Tribune reported that America going down the tubes won't cause a global recession "thanks to a European resurgence and the boom in Asia." Hahaha! This is fabulous!
For one thing, it proves that the Chinese government is just as stupid as our American one and their fiat currency will be just as worthless because of it, which I cleverly deduce from the article by Shailendra Kakani, of Commodity Research, titled "Plunge in U.S. Economy Doesn't Mean Commodity Bear". In it, we find that China is officially encouraging people to spend money as a direct attempt to increase aggregate demand, which will increase aggregate supply, which will provide the jobs to buy the output. All very, very classic-economics and all that.
But it gets worse, as the Chinese are also starting up with that whole neo-Keynesian deficit-spending crap, too, but now combined with their own brand of stinking commie redistributionist crap that always ruins everything, as "Simultaneously," the article continues "the government is doing everything to bolster the income of its citizens. Recently the government raised minimum worker compensation and increased welfare spending to get households to spend more and make the economy less dependent on investment and exports." Hahaha!
The stupid Chinese are deliberately choosing less dependence on investment, but more dependence on government handouts and people depending on the government? Hahaha! Does that sound like any other stupid government you know first-hand? Hahaha! So is communist China acting like America, or is America acting like communist China? Hahaha! This is too rich! The dollar is doomed, and the yuan that is killing it is also going to be doomed one day, too!
And then, after hearing this, you laugh at me in scorn for suggesting that you buy gold and silver? Hahaha! That shows that you don't know anything about economics or history, my misguided young one!
This brings up my criticism of the standard contrarian advice these days, which is "Own foreign currencies, precious metals and foreign stocks", with which I don't completely agree. For one thing, foreign currencies are being "managed" by their own governments, too, just like the disaster with the mismanagement of the dollar. So those currencies will be going down in purchasing power, too. So, the question is, "Is a relative haven a real haven?" I say not only "No", but "Hell, no!"
The only thing you can do is own gold, which is the only thing that will consistently hold its value. That is the Iron-Clad Lesson of History. And you don't have to actually read all of history, as all you have to do is listen to The Mogambo run his loud mouth about it, as I famously drone on endlessly, endlessly, endlessly about it, and will actually pursue you down the street to hammer it, hammer it, hammer it into your thick little head, louder and louder, and I never seem to shut up about it, according to whole baskets full of affidavits from family members and neighbors filed with the court, where, in case after case, the judges hand out Restraining Orders like candy or something.
Or you could read Addison Wiggin's book, Demise of the Dollar, to verify it for yourself, as there is a whole chapter titled "Short Unhappy Episodes In Monetary History". The quote to start the chapter, which makes the point I am trying so unsuccessfully to make, is from Norman Cousins, who said, "History is a vast early warning system."
And, brother, is it ever! The chapter goes from the Romans debasing their money 2,000 years ago, to the Chinese, 1,000 years ago, first experimenting with paper money (which was soon abandoned because of the inflation it caused), to Rome, Spain, France, Germany, 18th Century United States, the Great Depression, and not even mentioning all the episodes of economic crisis in the last thirty years. And gold sailed successfully through every single one. Every one. Every.
And as for foreign stocks, I say forget foreign stocks, and foreign economies, and foreign people who all speak English with funny accents while rudely laughing at us Americans because we are so fat and stupid; if America is not going to be sucking up vast, sweeping flotillas of cargo ships full of their exports anymore because the economy is going down and prices are going up because the dollar is going down, then they are all going down the tubes, too, as we consume damn near a third of the entire globe's exports as it is! An $850 billion a year current account deficit proves it!
And as the dollar falls, because of the monetary and fiscal stupidity and the crushing debts which have destroyed us, imports will become more expensive for us, meaning that we American consumers will buy less when we can ("No more big-screen TVs!"), and buy less other stuff (things for children, like clothes, shoes and birthday presents) when we can't, because we must use our dwindling buying power to buy the necessities (gasoline and tacos).
Until next week,
The Mogambo Guru
for The Daily Reckoning
Mogambo sez: Today I impart this True Mogambo Gem Of Wisdom (TMGOW): You can't do anything to thwart the greed of people for a free lunch, and thus you cannot thwart the boom-bust cycle, and thus - and thus again! - the only remaining option is to (like judo) use their weight and stupidity against them by buying gold and silver, and thus to become, as reader Brian says, Filthy Stinking Rich (FSR) when this current popular-and-laughable Federal Reserve economic idiocy and towering incompetence finally destroys the currency.
And then you can do anything you want, legal or not, as you will have so much money that you can usually settle disputes out of court, or, failing that, hire enough lawyers to tie everything up in the court system for decades or more which, at the rate at which you are burning the candle at both ends with all that wealth, will be more than enough time to die naturally with a big, beaming smile on your stupid face.
Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. If you're inclined to read more, you'll find the whole Mogambo here:
Big Jim China
-- Posted Monday, 18 December 2006 | Digg This Article
