Failed Banks and Failed Billions

[Donnachaidh]

http://www.informationclearinghouse.info/article25124.htm

More Financial Bubbles Ahead in the US Housing Market

By Bob Chapman

April 01, 2010 "International Forecaster" -- Bubbles have a hard time coming to an end, especially in residential real estate. Underlying forces such as government intervention to prolong the agony and the abject stupidity of builders extends the bubbles.

We are in a vast home inventory expansion and builders are going to build 535,000 new homes. The projected foreclosure rate could give us as much as a 3-year home inventory, up from present levels of about a year, if one includes the lenders shadow inventory. This past week the home building index rose 7.1% and it is up 25.1% year-to-date. The retail index rose 17% y-t-d, yet unemployment stubbornly clings to 22-1/8%. In fact, the retail index is up 87.4% y-o-y. We would say that index is grossly overpriced. As you can see bubbles have a way of not wanting to die quickly. This is caused by man’s disparately wanting to cling to the past attempting to take the easy way out rather than adapting to change. Government tries to keep sections of the economy alive rather than letting the cleansing process take its course.

The subsidization of the housing market is doomed to failure, because there simply isn’t enough money and credit available to keep it going indefinitely. All government is doing is re-flating a dying bubble. These Socialistic/Marxist policies just won’t work. Whether government likes it or not interest rates are headed higher, probably by 1% or more by the end of the year as government in its quest for more money to cover its debts crowds most others out of the market. This can be accommodated by the Fed, but not without higher inflation or perhaps hyperinflation, which in turn will drive interest rates even higher. We are seeing the reigniting of speculative mania in other markets as well – in the stock market and particularly in the low quality sector of the bond market worldwide. The mis-pricing of investments and finance is resulting in terrible distortions, mostly the result of Fed and government policy.

This mania has been aided and abetted by US dollar strength, especially over the past two months. We saw JPMorgan Chase, Goldman Sachs and Citigroup and others loading up on the long side of the dollar starting last October between USDX 74 and 78. They obviously knew the Greece episode was on the way. Irrespective, and in spite of no positive fundamentals, dollar strength was used to draw funds into dollar denominated assets. Supposedly the dollar has some sort of competitive advantage, which it doesn’t, and that a strong dollar will be re-flationary, which it has been. Gold and silver should have been flying to the upside, but our government detests free markets and it again temporarily suppressed prices. This is the result of the machinations of Larry Summers and Tim Geither. Dollar strength has the perceived benefit of the Fed’s ability to endlessly create money and credit.


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