The Rude Awakening
Wall Street, New York
Monday, March 26, 2007 ------------------------- - Rude readers own thoughts on housing,
- Are the "Primes" getting caught up in the sub-prime mess?
- USA exporting IOUs and plenty more
------------------------- Joel's Note: The following Rude Awakening reader mails respond to issues addressed in last week's columns. If you would like to send us any thoughts of your own, please address your comments to aussiejoel@the-rude-awakening.com As always, the views below do not necessarily reflect those
of your editors nor do we vouch for their accuracy. --- The Resource Reserve --- Now Open - For a Limited Time… The Resource Reserve Get all of our commodity-related publications together in one easy packageso you can effortlessly take advantage of the next leg of the massive commodity super boom. Act fast - this offer is only available until April 1, 2007… Click Here Now ---------------------------- Dear Rude, I agree with your conclusions, except I don't think most people understand what is happening in the prime home mortgage lending market. Most people think "prime mortgage" means 30 year fixed rate. That just isn't so. Prime products are the same as sub-prime, but at lower interest rates. Over the last few years lots of prime mortgages have been interest only (for no more than 5 years), negative amortizations, stated incomes, 2 year and 5 year adjustables, and other creative products. Just because you have a 720 credit score doesn't mean you can't get in way over your head on a home mortgage. The popular 80%/20% 1st and second mortgage financed home purchase is not confined to the sub-prime mortgage sector. Plenty of home buyers with stellar credit have bought in to the no money down scenario. We are seeing the problems in the sub-prime market now because people with poor credit to begin with are more likely to default and to do it sooner. But make no mistake, there are many, many, many, prime mortgage debtors who will not be able to continue making their mortgage payments for much longer. Should we go into a recession and these people start losing their jobs the problem will only be exacerbated. The mortgage foreclosure rate in the prime market will always be less because a much larger percentage of those debtors have substantial equity and/or a fixed rate loan. But that is a relative thing. There is plenty of risk in the prime market. Add to that, that most of the big home mortgage lenders have sub-prime divisions or subsidiaries and it starts to get quite scary. But why stop there? The credit card companies make it so easy to get credit that people with no business having large credit balances are getting deeply into credit card debt. Bankruptcy filings are way up. Can't pay your mortgage? Just take a cash advance. Then when you miss a payment the credit card company jacks your interest rate up to 29% and it's all downhill from there. I usually think the doom and gloom scenarios are overstated, and quite possibly things are not nearly so bad as this letter might suggest. But then again… Any thoughts? Lawrence J. Rose ---------------------------- Dear Rude, Mish has his thought bias and little else. I love the following statement: "So my question would be, "What's NOT discounted?" And there, there's only two scenarios to consider: The fact that the subprime contagion is going to spread and not be contained. That's the scenario you and I are talking about. And the other scenario is that the worst is behind us and the economy is going to pick up. But I don't buy that."
Two outcomes - He must lead a very simple life? The subprime contagion has been around too long, is already discounted, and the "contagion…spread", as he calls it, will play out over the very long term as he described in the article and also be discounted and contained. The banks and S&Ls learned their lessons well and the Fed will make no interest rate moves to save the hedge funds and Goldman Sachs who bundled this paper and sold it to their trusting admirers overseas.
Mish is begging for a rate cut, that if it happened, would create such havoc that it would become recessionary and require a re-set that would cause further damage. What about "Stagflation" does he not understand? The Fed controls nothing but the hyperinflation printing press!
His second option only reinforces his hypothesis and makes little or no sense that the worst is behind us if subprime loans have been discounted. The global world could care less about already absorbed US mortgage paper! I'm sure there are many Chinese and Indian laborers that would like to see a few more speculative Americans living on the streets as they do. However, their Finance Ministers do care if this causes the US consumer's spending "attitude" to rapidly collapse through a shift to saving, and they cannot absorb their export production internally fast enough.
What's not discounted? The speed of future actions by the US consumer! A group of "individuals" who are known to abruptly change their minds with little or no warning. The European stock markets will be the first of the global bubbles to fall.
Mish is too late with the mortgage bubble,
Joel Dee ------ Special Housing Report ------ Urgent Alert: Get Ready for the Worst Property-Led Recession of the Last 76 Years Nobody's money is safe. The "Second Wave" housing tsunami of 2007-2011 is about to hit, and smart investors are already battening down the hatches. Protect your savings and investments - click here… ---------------------------- Dear Rude, Greetings! I live in south Florida, Vero Beach area.I work in Port St Lucie (PSL), which is one of the fastest growing cities in the USA. Housing here is hurting terribly. The city of Vero raised impact fees a couple years back to $8,000 and wanted builders to build houses over $300k in price. Many are not sole and now they are trying to rent them out in desperation to get some income. In PSL, there are over 4,000 houses for sale, many brand new or almost new as they were bought as specs to flip. Great deals can be had on new houses for rent, as the owners need cash. Many forced to move into their spec houses or lose their deposit which often was $20-$50k. Then they put their older house up for sale or rent. The problem is that the local people cannot afford to buy a house here and the benefit of living in south Florida is gone because jobs here pay very low as it is a right to work state. To top it off, the hurricanes caused so much damage that once the homeowners were paid off the insurance companies dropped the homeowners and moved out leaving many who had claims forced to go with a company called citizens. Example of a problem follows. A man I work with had a house he bought for about $185k dollars. It is worth more now. Before the hurricanes hit a couple years ago his taxes and insurance were about $2k a year. After the repairs and the insurance company dropped him, his taxes and insurance are now $7,200 a year - $600 a month. This is not uncommon. Who can afford it and people are moving out of the state to other southern states. I sit next to a man at work that worked real estate before. He left his job about 3 plus months ago and called his former boss at the real estate office several days ago. Not one person in that office has sold a house in the last 3 plus months he was told!! This is in port Saint Lucie, Florida, which is north of West Palm Beach about an hour. The times, they are a changing! Anthony -------------------------- Dear Rude, Japan took their interest rates to zero and beat Bernanke at his own game with helicoptered yen that made Japanese exports competitive. But what the heck are we exporting beside IOUs? If we take our interest rates down to zero, the consequences will be much more serious. Beside no longer manufacturing exports except food, which is going out of sight, the dollar is a so-called reserve currency, unlike unfulfilled yen reserve aspirations before 1990. Taking dollar interest rates down to zero will create worse that the wheelbarrow money of the Weimar Republic that led to Hitler das Fuhrer.
Point and figure charts suggest 90 day T Bill rates may go to 13%, suggesting a whole lot of sturm un drang for anyone not holding Consitutional money, i.e. gold and silver specie. Regards, R. Cash ---------------------- | 
