Yes, those are all things we are going to touch today in such an order. The economic picture painted by mass media is a total mess, looking quite suspicious to any reasonable person with a bit of common sense left. Today, gold is down, silver is up and dollar is up. Yesterday, all metals gold including, and other commodities were up as well as dollar, which was quite strange. It has been actually going on for some time and may be signaling a disconnect between dollar and gold. Unemployment is up too, never mind what you hear. And everyone is talking about recovery. Meanwhile, the Fed is signaling that it will keep interest rates at the current lows until mid year. We need to ask again, what year, 2011 or 2012. There is no way for the interest rates to go up. Even if treasury bond prices start falling thus pushing yields and interest rates higher, the Fed will do everything to fix it. It knows that the economy and any illusions about recovery still left, will be squashed by rising interest rates. Whoever frets about inflation with money being printed by the truck, should stop fretting. I have not seen any of those money reaching main street yet. Moreover, the shear number of people qualified to get the loans is pathetically small. And will be getting smaller, so there will be no need to raise interest rates.
Dollar goes up every time some bad economic news come out, since it serves, according to experts as safe haven. As they put it, U.S. dollar offers the best protection and liquidity out there. It happens whenever we get higher unemployment numbers or recent Dubai like announcement about some dreadful economic stuff. So basically it is dollar now, not gold that is thought of as insurance against economic turmoil. Gold is now a vehicle to profit when global recovery led by whatever country will happen, and inevitably result in inflation, higher spending, larger jewelry sales, much higher industrial output and farming, so every commodity will go up. In a sense dollar and gold roles are now reversed.
If someone is still having illusions about economic recovery, take a look at the most recent headlines. The most telling one is that personal bankruptcy filings are soaring again, that is in the USA. The article itself makes little sense. It talks about consumer bankruptcy cases plunging to a 20-year low in the first 3 months of 2006, after the passage of Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or BAPCPA.
But nowadays, courts now see an average of 2,000 new filings a day, 4 times the number that were filed in November 2005 after the bankruptcy law went into effect, so we could see close to a million filings by the end of the year. Then it blames this increase on attorneys who finally found the ways to get around, higher interest rates on credit cards, growing number of people who have no medical insurance and financial illiteracy. In my view, it shows a huge number of unemployed and underemployed people who are now perfectly qualified under the BAPCPA by having no adequate cash flow and no assets to pay the bills. And most importantly, it shows that just like with foreclosures, Chapter 7 bankruptcy is becoming a national past time. When I wrote Stop Paying My Mortgage, I was already thinking if I should write something like Stop Paying My Bills next. And personal bankruptcies are also soaring in other countries where it is allowed in one form or another, including UK, Canada, Australian and European Union.
Now to the pending home sales. Those went down by 16% in November. This is huge drop, a combination of upcoming winter and shortage of would be buyers trying to take advantage of the 2009 Home buyer tax credit act. You have to understand that vast majority of homes sold in the last few months were in the $80,000 to $150,000 price range. The pricier home market is as stagnant as ever. In my neighborhood, prices are down by around 14% which when translated in dollar terms is quite a chunk of change. Add to this the cost of improvements or remodeling, you are down some 30% to 40%, compare to today’s market value. Basically this money is gone. Meanwhile property taxes are increasing by close to 5% every year. The county can not afford to give you a tax break, based on the current home values. With foreclosures, fewer people paying taxes on their homes, and with sales taxes decreased very significantly since fewer buyers are shopping, no matter what the media is telling you about consumer spending, all the public services would stop and we would close the shop, as one guy in local township put it. As the result, property taxes are now 3% to 4% of the current asking prices.
What is more? One of the today headlines states that economists worry economy won’t recoup 7.2 million lost jobs. Of course it won’t. This piece makes actually more sense and does give some sober assessments,
– most economists don’t expect the employment picture to significantly improve anytime in 2010, or over the next few years for that matter
– the unemployment rate, which stood at 10% in November, is expected to stay high for the foreseeable future before another recession and round of job losses
– unemployment is heading up with most economists expecting it to rise during the course of 2010, even as employers start adding jobs
You can find this one and others on CNN Money, but why waste your time when I have already explained everything.
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