1st quarter prime foreclosures were the highest ever at .25. Nothing at all has changed for the better in the housing market.

Contingencies in some markets are stacked 3 and 4 deep (1 signed contract contingent upon closing of another, which is contingent upon closing of yet another, which closing is contingent on sale of the existing home).

Lower delinquencies are being achieved by payment and rate modifications. This can't continue; the market seems to be on the verge of another big step down. Bank profits and asset values are going to take a beating.

I don't know whether anyone else noticed, but this morning's PPI showed lessors's prices dropping ex mini-warehousing/consumer storage. Not a good sign for CRE!

"Looking at the data, California and Florida are still seeing low foreclosure rates. I think that will change later this year."

We keep hearing about rising foreclosures in Orange County. So that's just an advance indicator?

Mike ,

where do you think $TNX is going ?

In keeping up with these types of statistics, I feel like I am watching a perfect storm developing in the economy. I know a lot of professionals (doctors, lawyers, scientists) and while they all would say the country is going in the wrong direction and are quite upset at how our foreign and fiscal policy is being run, none believe there will be a housing bust (they are also not aware of these data). I think this possibility is inconceivable to them. Just wait for the "mood" readings when this debacle becomes general knowledge.
I find the current situation quite stressful. I want problems to become widely recognized soon so we can start seriously dealing with them and I can start planning rationally for the future again.

btw, both FED and DSL are down today on high volume.

I've just posted about coming Fed rate cuts in my blog. Click my name if you are interested.

BTW thero,

I broke down and bought a few bonds even though I still think there could be a beating in the future, so you'll have someone to suffer with you.

Until somebody can explain to me how Japan can keep their long rates at 2% with twice the debt we have, I can't buy the FCB dumping argument. It may be a short-term consideration, but I think with a currency that has no real backing (e.g. gold) the Fed can keep interest rates artificially low if it really wants to by monetizing the debt. And since their mandate is to keep unemployment low, I think they'll have the obligation to do this if things get bad.

I'd be happy to change my position if somebody gives me a good counterargument.

rate cut or rate hike ?

They need to hike, but can't take the political backlash that could occur if it causes a sudden downturn.

So I think they'll keep trying to do it by asking Greenspan to make the occasional spurious market-rattling comment such as:

"Bond investors don't need to worry. I doubt the yield on the 10-year will exceed 6%."

Japan's debt is financed internally (i.e., through domestic savings) -- that's why.

Maybe I need to do a little more research, but I don't know that this would prevent the Fed from buying as much government debt it wants (and thus driving rates down).

Relative to other assets, there's really not that much treasury debt out there. 4.5 billion vs. total U.S. financial assets of 50 billion.

Given the low reserve limits and the beauty of the money-multiplier system, I don't think the Fed would have much trouble reducing the supply of treasuries and lowering interest rates.

Maybe I'm missing some key point here.

A rough guideline for the "correct" ten year yield is equal to nominal gdp. Japan's gdp is expected to run around 2.5%, with zero inflation, so a 2% ten year is a little on the low side - a result of the BoJ dragging it's heals on hiking rates - but not outrageously low for an economy with no inflation. If you apply the same to the US, expectations of 2.5% growth and a 2.25% forecast for the deflator, ten year yields are now a little on the high side, especially if you think gdp growth isn't going to be as high as expected. I guess the best explanation is the market isn't yet willing to discount that Japan is out of deflation, or that US inflation has really peaked for this cycle.

Another not quite but sort of on topic nifty factoid today is that the major US investment banks have now increased their operating leverage ratios to 25x, which is the same level LTCM was operating at (and the maximum they thought "prudent") before things started to go pear shaped for them. Given that the investment banks bailed out LTCM to stop a total system meltdown, I wonder who's going to be around to bail out the investment banks? The Fed mandates that banks operate with a maximum leverage ratio of 14x or less, with an absolute max of 16.6x before they shut the dooors. I guess it's not such a mystery how their making all that money after all...

What you guys think about this? Looks pretty bad.

Richard Cook: It’s Official: The Crash of the U.S. Economy Has Begun

Bill,

The headline CPI has risen at a 4.9% (non-seasonally adjusted) pace for the past 6 months (it is up 2.4% during the 6 month period). According to briefing.com the consensus is for another whopping 0.6% in just one month (May). We find out tomorrow.

I think people are being lulled into a false sense of inflationary security because of the commomdity selloff last fall. If we don't get another one just like it, and soon, the headline inflation picture COULD get rather ugly shortly. (My crystal ball is very cloudy, this isn't a prediction.)

Sure, the core inflation rate has been somewhat behaved lately. However, for the past decade there has been a widening gap between core and headline inflation. It is starting to make some wonder (including me) whether energy is riding higher on a secular wave and not just a volatility wave. If it is the former, we can throw everything we think we know about inflation right out the window. The game has changed. We'll be looking at billions of overseas workers not as deflationary helpers but as inflationary competitors.

Of course, there are a lot of "ifs" and "buts" in my thinking. If I could predict the future I wouldn't need to read posts here, lol.

I think it will not stop at 5.5% If it moves beyong 5.35% the next stop is 5.65% - 5.70% since once a move starts there are many who short it for some reason.

Not entirely out of the question IMO. Especially if we made China mad - I think just the threat of a treasury dump could trigger another rout.

But I think these rates would really crush the economy. For that reason, I can't imagine these kind of rates lasting for long. But I've been surprised before.

ac,

Your remarks here are right on the money, in my opinion. The Fed doesn't want to loosen rates with speculation rampant. On the other hand, they don't want to send the markets and the economy into a tailspin.

I think the only way to think about inflation and stay sane is to define it as price increases caused by monetary expansion, and to differentiate this from price increases due to something becoming more valuable (because of increased demand and/or reduced supply). I believe these are two completely different phenomena and should be treated as such (they aren't and I think it creates a lot of confusion).

Inflation is caused by the relationship of two entirely different things. One is money as you point out. The other is goods. You need to look at both in order to understand inflation (even if it does make one slightly insane, I can't say I am sane! ).

In a nutshell, inflation will rise if the amount of money increases faster than the amount of goods.

For example...

Is it not entirely possible that the amount of oil being pumped into the world is not keeping up with the amount of US dollars being pumped into the world?

At a gut level, does it not bother you that we send vast amounts of paper dollars overseas in exchange for actual goods? If that process has been deflationary for us (which it clearly has since those dollars never really got spent by them, merely hoarded), is it not possible that the reverse of that process will be inflationary (they start to spend the dollars we sent them and each dollar therefore becomes worth less)?

Put another way in the form of an extreme example...

Let's say the government printed 1 trillion dollars for me each year. I decide to live rather modestly (for a person receiving that sort of money!). I spend $50k of it per year and bury the rest of it in my backyard. (Note to the government: I'd agree to this deal by the way! )

The government tracks inflation. It sees no harm in what it has done. It continues to print a trillion dollars for me each year. I spend a very small portion of it and continue to bury the rest.

At some point I die. My neighbor, curious about what I've been burying comes over and starts digging holes. When he sees the hoard, he can't believe his good fortune. He goes on a spending spree not even God has seen (to nearly quote Dune).

Suddenly the government starts to notice what it has done. Why is some guy in Washington State willing to pay $50 for a can of soup just because he can? Why is he leaving $10,000 tips for a cup of coffee? Why is the "contagion" spreading? Why can't they contain it? Just how many friends and relatives did my neighbor have? Why couldn't he live as modestly as I did?

OOPS!

It is just a story though. I have no idea what will happen. At some level I tend to agree with your deflationary outlook. At least some of this is the effect of easy credit (wish I knew how much). What easy credit gives us in the form of inflation, it can also take away in the form of deflation. On the other hand, I also see inflationary pressures. It is possible we'll get the worst of both worlds (stagflation).

I'd claim we're in unchart

Turbo,

When everything is going up I guess operating at X25 is no problem.

These guys have hi IQ they will unwind all the leverge before things start going down....all they need to do is sell 96% of their assets at the top.

j6p=Joe Sixpack

I see the NAR in the rearview and moveon.org up ahead.

And if that isn't the clearest possible indictment of how corrupt political discourse has become, I don't know what could be.

moveon.org? A mild observation from CR regarding the current political mood--which, last I knew, was fairly uncontroversially a part of any good economist's analysis--and we're headed for socialism? Such slippery slopes you seem to live on.

Hyperbole--and the odd dose of meiosis, but that's usually wasted on the net--is and has always been a fine tool in the writer's arsenal. But there is such a thing as wild rhetorical inflation, debasing of the terminology until rational discourse is no longer possible. "Socialism" in the American mainstream media? Since, like, when? If "socialism" means no more than the odd tip of the hat towards the social safety net, then I suppose I could see where you get that in most daily papers. But since that definition makes all of us, up to and including CR and AllenM, socialists, it seems to me we're not increasing the precision of the term. We are merely ratcheting up the emotional load of the words. I am aware that that's a fine American tradition, but I don't have to participate in it.

CR and I are undoubtedly worlds apart on a number of issues; I couldn't tell you how many, since he and I do not focus on what separates us. We neither silence nor correct nor speak for each other. It seemed like an interesting model for a blog: a "found" partnership in which a passion for getting one's facts right could possibly push us past the sloganeering and cheerleading and, well, drivel on the political scene. Certain fundamental differences of opinion between host and co-host never degenerate into difficulties, in no small measure because after "getting it right," "failing to lose one's sense of humor" has always been the inviolate code behind the masthead.

I think it is possible that a sense of humor can lead anyone astray from political orthodoxy. That would be one reason I try to maintain mine. Nonetheless, I'll just bet I've spent more time on the left than you have. If you think I'm the leftiest thing on the political horizon, a downright socialist . . . you have lived a sheltered political existence. I would heartily expect all true socialists to be rightly annoyed at having to claim someone like me. God knows they don't deserve to have to claim the bleedin' Wall Street Journal.

If somebody wants overtly political, here's Bush's campaign slogan to the Fortune 500:

"We cheat the other guy and pass the savings on to you!!"

Red Pill, I am merely practising my hortatory subjunctive. Other people can worry about tense; I worry about mood.

If you missed Laurita Doan's testimony in front of Mr. Don't Eff With Me Today Waxman, then ignore the hortatory subjunctive business and please return to regularly scheduled cynicism. I've been a bit under the weather for the last few days and yes, I've been streaming CSPAN.

Tanta - You emerged! Where have you been? Miss your commentaries!

    AND CUE HOWARD COSELL
The board started as a hobby, was recognised for its quality of content, and drew many smart commentators.

Tanta's expertise was a big draw, but certainly pulled us farther from center. A few righties like Sebastian stayed on board through Tanta's promotion to co-blogger.
...

As a scientist and professor, I am often distressed when some many topics are labeled as polical. While aspects of how they are treated have polical implications, evolution is a very strong mainstream line scientific field of research and global climate change and stem cells are normal science.

And humour about politicians is hardly taking sides.