Bearish News

The chart store gives us the gem of a chart below. At the 55 week mark, the current move ranks #27 out of 4,327 rallies since 1929.

Hat tip BR.

What a madman. 1% interest rates?! Why are people freaking out? It’s not like his lone voice matters much.  Hoenig is just the KC Fed President. On the FOMC he’s hopelessly outnumbered by doves.

Forgive the Steve Liesman clip. Bloomberg doesn’t have a video up yet.

• The Most Dangerous Man in America: Jamie Dimon – Baseline Scenario
• Top Fed Official Wants to Break Up TBTF Banks, Eliminate Moral Hazard – HuffPo
• Jim Grant vs. David Rosenberg on Bonds – Zero Hedge
• Time to Rebalance – The Economist
• Genesis of Gold-Tungsten – Zero Hedge
• Two Versions of Reality – Financial Armageddon

On a side note, I could use some help with a research issue if anyone wants to take a crack at it. I’m working on a piece that quantifies the harm easy money does, specifically to retirees and other savers. What I can’t find is the answer to this question: How big is the U.S. CD market? With rates down from an average of 5% to 1.5%, retired folk are getting crushed.

I’ve got data on total savings, total FDIC-insured deposits, etc. But I can’t find how big the damn CD market is, anywhere. Any ideas?

Here’s one of the charts I may end up using. It shows total real estate loans (blue), total savings (red), and historic CD rates (green, right y-axis).

The latest Case-Shiller data is out. Home prices for the 12 months ending in January 2010 were near flat at -0.7%. Here’s a longer term view.

The trend does appear to be positive, but we’ll see what happens if/when the home buyer tax credits end in April. And what effect Bernanke pulling out of the MBS market has on rates. And how the Option-ARM peak plays out.

h/t Big Picture.

More bad news on America’s housing front. Bloomberg reports that 51% of loan modifications have failed within 9 months.

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

The current round of foreclosure-prevention plans have failed after just 9 months, even though they were short-sighted extend/pretend in nature — reducing interest rates to 2% for 5 years and extending loan schedules out to 40 years. They probably thought this would buy them at least a couple of years. So while banks collected a ton of fees from the govt for “trial” modifications, they obviously aren’t working.

It’ll be interesting to see what happens after the Fed ends MBS purchases, and rates (presumably) go up a bit. The homebuyer tax credit expires in April, which could also negatively affect demand. But so far the efforts appear to be an utter waste, more backdoor bank bailouts.

If anything, they only pulled demand forwards, and served to reward people lucky enough to buy during the bonanza. Buy a house a day before or after the tax credit is in effect? Tough sh*t.

Extend and Pretend Take Two: Principal Reduction (For a Few)

Some have applauded Bank of America’s recently announced principal reduction program, which cuts loan amounts up to 30%. But it should also be noted that BofA isn’t doing this out of the kindness of their heart. It’s part of a settlement with multiple attorneys general in connection with their sketchy Countrywide loan portfolio. The Obama administration is expected to announce a more widespread program tomorrow.

This efforts’ prospects nearly as bad as the original loan-modification programs. To qualify, borrowers must be at least 20% underwater, have an ARM or Interest-only loan,  and be at least 2 months behind on their payments. The prospect of a $40,000 reduction in a loan will inspire a lot more people to be a lot later on their mortgage payments. And probably a lot of fraud losses along the way. More moral hazard incoming…

This chart from ContraryInvestor.com (subscription req’d) shows 40+ years of Fed Fund rates vs. full CPI (including food and energy prices, excluding shelter/housing costs).

The disconnect between interest rates and CPI from 2002-07 is especially noteworthy in light of Greenspan’s recent arguments that low interest rates weren’t responsible for the housing bubble. Apparently giving banks access to a spigot of cash does not encourage reckless lending. Here’s Greenspan rationalizing extended low interest rates during this period:

We had been lulled into a sense of complacency by the modestly negative economic aftermaths of the stock market crash of 1987 and the dotcom boom

Given history, we believed that any declines in home prices would be gradual. Destabilizing debt problems were not perceived to arise under those conditions

Given that we had never seen home price appreciations this rapid, might an objective observer have thought something off? Someone who’s full-time job it was to assess these things?

Vacancies

Here’s another great chart from Contrary Investor (again – CI is subscription only, but well worth it IMO. I have no stake in posting these links, but they offer some of the best charts and analysis I’ve found).

The chart below shows various home and rental market vacancy stats. Though things have improved, we still have to see what goes down when (and if) the Fed/Govt ends their massive support programs (currently scheduled to expire near the end of Q1 2010). Things may start deteriorating all over again, but we’ll have to see.