No bottom in sight

The happy-happy spin on all things economic never ceases to amaze me.  Check this out:

April 22 (Bloomberg) -- U.S. home prices rose 0.7 percent in February from January, the first consecutive monthly gain in two years, a sign that low interest rates may be moderating declines in real estate values.

Interest rates will save us?  What bunk!  What actually happened was that Fannie Mae, Freddie Mac, Citigroup and other major players agreed to a moratorium on foreclosures during the first quarter.  It wasn't a strict moratorium, more like a patchwork of delays and emergency refinancing deals and who knows what, but it did reduce foreclosures in the early part of the year.  Fewer foreclosures = fewer fire sales = higher average prices.  0.7% higher in February, to be precise.

Hallelujah! screams the media.  Foreclosures are down!  Prices are recovering!

Uh-huh.  And look at what RealtyTrac has to say now:

March had the greatest foreclosure activity RealtyTrac has seen since it started keeping track in 2005, and "we think, in fact, the foreclosure moratoria that we'd seen, and some of the legislative delays, actually contributed to the March numbers being as high as they are," says RealtyTrac's Rick Sharga, who describes the efforts as "like trying to dam up a waterfall with bubblegum."

Journalist Mike Whitney cites even worse data from RealtyTrac:

“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage."

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as “shadow inventory"....

If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They’d also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 “disappeared” homes means that housing prices have a lot further to fall and that an even larger segment of the banking system is underwater.

It means that any time the housing market raises its head and makes a stab at recovery, onto the market will flood some more foreclosure sales.  Meanwhile, foreclosures caused by sudden unemployment will continue for another year or more, unabated.  And then, there's the "option ARM" foreclosure wave.  A slew of option ARMs began resetting in March, meaning that many homeowners saw their mortgage payments skyrocket last month.  90 days later, many of those homes will be in foreclosure.

But hey, if you're feeling down, turn on CNBC and bask in the sunny rhetoric about "green shoots of prosperity" and "recovery beginning later this year" and how we've "turned the corner" and "seen the bottom".

As far as the stock market goes, we're at about April 1930, that first rally after the crash:

US stock markets have a long way to fall.  The Dow will probably fall for another couple of years, to something below 4,000.  (It's important to consider inflation adjusted numbers, because if we have runaway inflation the Dow could hit 50,000, but by that time bread may cost $35 a loaf.)

But hey, I could be wrong.  Bernanke thinks we're seeing the first little seedlings / green shoots / [insert spring metaphor] of recovery, and he has a PhD in economics.  We have to respect the sagacity of professional economists at a time like this, especially those with impeccable Ivy League credentials.

"[T]here are indications that the severest phase of the recession is over..."

            -- Harvard Economic Society, January 18, 1930

"... the outlook continues favorable..."

            -- Harvard Economic Society, March 29, 1930

"... the outlook is favorable..."

            -- Harvard Economic Society, April 19, 1930

"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."

            -- Harvard Economic Society, May 17, 1930

"... irregular and conflicting movements of business should soon give way to a sustained recovery..."

            -- Harvard Economic Society, June 28, 1930

"... the present depression has about spent its force..."

            -- Harvard Economic Society, August 30, 1930

"We are now near the end of the declining phase of the depression."

            -- Harvard Economic Society, November 15, 1930

[These quotes & the next few, in italics, are from the Chart of Pompous Prognosticators.]

Mr. Geithner is equally upbeat.  Surely the Secretary of the Treasury knows what's what, eh?  We can take some comfort in optimism when it comes from the Treasury Secretary himself!

"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."

            -- Andrew W. Mellon, U.S. Secretary of the Treasury, December 31, 1929

"There is nothing in the situation to be disturbed about."

            -- Secretary of the Treasury Andrew Mellon, February 1930

If nothing else, we can look to the President.  The Executive of the nation is plugged into everything, and if he says recovery is on its way, the country can breathe a sigh of relief.

"While the crash only took place six months ago, I am convinced we have now passed through the worst....  There has been no significant bank or industrial failure. That danger, too, is safely behind us."

            -- Herbert Hoover, President of the United States, May 1, 1930

"The depression is over."

            -- Herbert Hoover, President of the United States, June 1930 

I'll end with some of Jim Kunstler's observations of last week:

It's a curious symptom of the consensus trance zombifying the American public and its auditors in the media that something like a "recovery" is now deemed to be underway. And, as events compel me to repeat in this space, it begs the question: recovery to what?

To Wall Street booking stupendous profits by laundering "risk" out of bad loans with new issues of tranche-o-matic securitized paper? This I doubt, since there isn't a pension fund left from San Jose to Bratislava that would touch this stuff with a stick, even if it could be turned out in collector's editions of boxed sets.

Does it mean that American "consumers" (so-called) are awaited momentarily in the flat-screen TV sales parlors with their credit cards fanned-out like poker hands, ready for "action?" Not too likely with massive non-performance out in cardholder-land, and half the nation's electronics inventory wending its way onto Craig's List.

Are we expecting more asteroid belts of new suburbs carved in the loamy outlands of Dallas and Minneapolis, complete with new highway strips of Big Box shopping and Chuck E. Cheeses? Go to banking's intensive care unit and inquire (if you can) among the flat-lining production home-builders and the real estate investment trusts on life support when they expect to rev up the heavy equipment.

The idea that we're about to resume the insane behavior that induced the current epochal malaise of economy is so absurd it will only be heard in the faculty dining halls of the Ivy League....

So many forces are arrayed against a return to the previous "normal" that we will be lucky, in another eighteen months, to still find ourselves speaking English and celebrating Christmas.

Comments

[Andrea Q]

I keep thinking that we're repeating history. I'm working on my garden and buying heirloom seeds!

[freelearner]

I'm doing the same-- trying to expand my garden and trying to use heirlooms and save the seeds. I've accumulated a lot of canning jars, too, and a pressure canner; also a food dehydrator. I consider this to be "quality of life" insurance-- if American life changes drastically, at least we should have some good fruits and veggies.