Goodbye 2011...Glad You Couldn't Stay any Longer...Hello 2012!

As the year winds down in a couple days, I can't help but make my own list of events that moved the world or just me in 2011. Can't say I'm sad to see 2011 go, and 2012 looks real good, right now.

My points are here and in no particular order but rather just a rambling list:

• We learned the term 'Arab Spring' where all sorts of Arabic dictators were swept out of power, only for the Arab people to realize afterwards that they didn't know what to do next.
• Bin laden & Gadhafi, among others, finally got to meet their makers.
• US Forces are the best there ever was.
• The last Space Shuttle flew and landed.
• "Things are getting better, you just can't see it or feel it," said the Naked Emperor.
• Andy Rooney died, and will be sorely missed. I wish I knew how to complain like he did.
• One of the biggest earthquakes and subsequent tsunami's hit northern Japan, killing 16,000 and melting down 4 nuclear reactors.
• The NBA season was delayed. Nobody noticed.
• I joined the 30% of the US population and got a real smart phone, a computer, not just a dumb phone that gets email, after I learned Blackberry has two years left to live.
• 9/11 was remembered as 10 years had passed. We realized just how quickly America forgets...
• Budget cuts are over a 10 to 20 year period, so they really don't cut anything.
• The Cards win the series, the Cards win the series! It may have been one of the best post season runs -ever.
• Interest rates got lower. So did home prices.
• The 99%'ers showed up and said we are tired of the 1%'ers walking all over us.
• Everyone took a shot at running for President as a Republican.
• We learned Obama doesnt have a 'real' birth certificate, and all politicians don't have 'real' morals, memories, attention spans or ethics for that matter.
• Politicians look the same in prison as they do in office.
• Wall Streeters don't get prosecuted, they just skip one year of bonuses, then back to the status quo.
• The Fed printed money without limit only to tighten lending further so it can't be given out.
• Tweeting can be dangerous, especially for movie stars, politicians, and drunk people.
• Obama added $4 Trillion dollars to our national debt in 3 years, a feat that took Bush 8 years to do.
• 80% feel that government is broken in one way or another.
• Unemployment hovers somewhere between 8% and 16% depending on how they cook the numbers. Sorta like re-baking the bread after it has already been sliced.
• Charlie Sheen spent the year winning...
• Stimulus Spending has admittedly now done nothing but paid off political favors and raised the debt. 
• Lot's of movie stars got divorced, replenishing the movie star heard for the picking.
• The apocolypse didnt come, as we all know that's in 2012...
• That 2012 will be better than 2011...Happy New Years.

D

FHA - A New Bankruptcy & Bailout Dead Ahead

FHA Nearing Insolvency
In some regards 2012 is shaping up to be just like 2008. As Yogi Berra once said, "It's like de'javu, all over again...".  FHA, or the Federal Housing Administration, is on track to go bankrupt sometime next year. Destined by poor loan underwriting, low and effectively no down-payments, the FHA and the US taxpayer will add FHA to the scrap heap of failed programs Freddie Mac and Fannie Mae. Yet FHA continues to crank out loans with no reserves to support them as existing loans continue to rack up losses. The inevitable FHA bailout may eclipse Freddie and Fannie losses combined.


Govt. FHA Becomes New Sub-Prime Lender
As the mortgage industry collapsed in 2008, FHA, the small low down-payment government backed lending agency, stepped in to become the primary market lender spurred by a U.S. Government desperate to prop up a housing market that was dropping like a rock.


FHA became the only primary sub-prime and low/no down-payment lender overnight, tripling the amount of loans it originated. FHA's lending policies effectively kept its required 3.5% down-payment at a theoretical zero, through liberal card tricks like "gift credits", "deposit assignment credits" and "seller rebated amounts" so no borrower money was really at the closing table.  Failing to change their risk modeling based on the new sub-prime client base, FHA's losses have climbed dramatically. Even today, FHA has lagged behind the other failed GSE programs Freddie and Fannie to tighten lending standards, continuing it's lending charade.  


FHA's Dramatic Rise in Loans Made

FHA Sees Crisis Period Loans Failing Much Faster
As anyone but FHA could guess, the old risk models didn't work and almost immediately loans originated in the 2008 crisis and later went bad much quicker and in much higher numbers:

FHA Capital Levels Fall Dangerously Low

• FHA's Required Capital Reserves Level - 2%
• FHA Jan. 2008 Reserves - 3%
• FHA Dec. 2010 Reserves - .50% 
• FHA Dec. 2011 Reserves - .24%

Simple math shows FHA will run out of reserves sometime in 2012. This lack of reserves also prevents FHA from participating in any new homeowner assistance programs since subsidizing loans or lowering standards even further erodes reserves even quicker. In October 2010, FHA raised insurance costs to all FHA mortgage holders in an attempt to pass on losses to you know who, the consumer.


Taxpayer Losses Will Grow On Continued Losses
Losses continue to mount at Freddie and Fannie, the two GSE's (government sponsored entities) that were taken over by the US Treasury in 2008. FHA will soon be added to this list as well:

• Freddie Mac losses to date $70 Billion
• Fannie Mae losses to date $115 Billion
• Estimated total losses through 2013 $221B-$363B

These loss estimates were made in mid 2010. Losses are now feared to be even worse than estimated.  If FHA goes under, and I can't see why it won't, losses will be much higher due to the nature of the lower credit profiles at FHA, and may be double our existing losses.  This will bring the total loss in home mortgages to near $1 Trillion. These losses add to the national debt, but are not added to the our existing annual budget deficits being quoted in the media. What is clear to see is that the governments social experiment of underwriting home ownership for every person in America will be a costly failure.


D.

Cost of Banking 2.0 - Go With A Community Bank

I posted my thoughts on where bank fees were headed in October, and now things are much clearer. Yes, the cost of banking has went up for banks and their customers.  One thing that is under-reported; the fees imposed are a mere fraction of the costs that banks are absorbing under the huge regulatory burden placed upon us all by the Democrats and the Obama administration. Fees are never absorbed by a government or an industry. It is always passed on to the most basic subset: the consumer.


Here are a few quick points for all consumers looking for the right bank in the higher priced times and then a re-post of my October blog follows.


1) Move to a Community Bank. Community Banks are setting costs in a break even move against regulatory fees. Big Banks are using this opportunity to create new streams of revenue and profits for their coffers. Big Banks caused this mess and the ensuing burden on the system.  Community banks never participated in the Wall Street debacle, and are only invested in the community and customers they serve.


2) The right bank will offer you options and products to minimize your cost of banking. Community Banks are bundling products and services and offering the lowest cost to deliver you everything you want at the lowest price point.


3) There has never been a free lunch. Nothing in the world has ever been free and banking is no exception. If we take a pragmatic approach to having instant and immediate access to the financial system of accounts, ATMs, debit cards, online systems and that iphone app, someone has to pay for that. 


4) These regulations are another attempt to redistribute and socialize the world monetary system. However, everything for free for the masses has never worked throughout history and it didn't with Dodd-Frank Regulatory Reform either.  Why do you think both sponsors of this heinous regulation retired and didn't re-run for Congress?  If you are a capitalist, please remember to exercise your right to vote. 


Here is my blog from October, 2011:

Bank of America announced this past week they will begin charging a monthly fee of $5 for customers  to carry debit cards. Of course it was national news, and ran on all the networks. Regions Bank said they were doing a $3 fee and Citigroup was still evaluating their costs.  Well folks, it's coming. Soon banks will be charging fees for all kinds of things that used to be free.  Banks charge fees to cover the costs of services demanded by consumers. Do you think that 100,000 ATMs across America don't cost anything to develop and operate?  I've joked recently that big banks may have a cover charge at the door!  The cost of banking is going up.  Thank you Barney Frank, the Democrat controlled Congress, and Mr. Obama.  Regulatory reform has injected government controls into the free market banking system, all in the interests of saving the consumer money. When did government ever save the people money?  The government has said, we can make the big bad banks charge you less. But, when one fee is capped or eliminated, other fees must take their place to financially support the system.  Free checking will be next due to the elimination of overdraft fees. The government once again is attempting to make the Haves pay for the cost of serving the Have-Nots.  It just isn't going to happen.

A free market system is best left to seek its own level on costs and fees for service. The American consumer has always been good at determining what are respectable costs and what are not.  If the costs are too high, the consumer quits the service. The service must readjust to an acceptable level or fail. Just look at the backlash from Netflix raising fees for their service recently.  The consumer effectively said no. Netflix has lost hundreds of thousands of customers overnight. It's too bad the government hasn't yet figured that out. 

D

The Cost of Banking is Going Up

Bank of America announced this past week they will begin charging a monthly fee of $5 for customers  to carry debit cards. Of course it was national news, and ran on all the networks. Regions Bank said they were doing a $3 fee and Citigroup was still evaluating their costs.  Well folks, it's coming. Soon banks will be charging fees for all kinds of things that used to be free.  Banks charge fees to cover the costs of services demanded by consumers. Do you think that 100,000 ATMs across America don't cost anything to develop and operate?  I've joked recently that big banks may have a cover charge at the door!  The cost of banking is going up.  Thank you Barney Frank, the Democrat controlled Congress, and Mr. Obama.  Regulatory reform has injected government controls into the free market banking system, all in the interests of saving the consumer money. When did government ever save the people money?  The government has said, we can make the big bad banks charge you less. But, when one fee is capped or eliminated, other fees must take their place to financially support the system.  Free checking will be next due to the elimination of overdraft fees. The government once again is attempting to make the Haves pay for the cost of serving the Have-Nots.  It just isn't going to happen.

A free market system is best left to seek its own level on costs and fees for service. The American consumer has always been good at determining what are respectable costs and what are not.  If the costs are too high, the consumer quits the service. The service must readjust to an acceptable level or fail. Just look at the backlash from Netflix raising fees for their service recently.  The consumer effectively said no. Netflix has lost hundreds of thousands of customers overnight. It's too bad the government hasn't yet figured that out. 

D

Debt Will Be "The End of Days" Never Seen Coming

Theories abound about the end of days. To each and every thing there is a beginning and an end.  Hollywood loves to kill us off on screen.  We love to go and see how it all ends. Have you seen the movie about debt bringing our civilization to an end?  No?  Debt bringing it all crashing down?  You know the one where there is a world wide drought, and we decide not to sell the Chinese grain on credit because they have too much debt. And so they decide to take it by force? Not exciting but quite probable.

Far fetched? Not really.  The Romans lost control of their finances through debt. When the people of Italy realized they could elect politicians who had promised them handouts from the public treasury it was a self fulfilling curse that lead to the end.  Debt is everywhere.  If you have it, it is bad. If you have a lot it's a choke hold that one can't get away from.  I want to focus on several facets of debt and how it affects us.

Greece. The focus has been on Greece and their debt recently. Greece has more debt now than their population and government could ever hope to pay back some economists report. It's a small country, little in the way of industry and 50% of their population is on the government payroll! It's protectionist, steeped in a history of singularity, and little outside investment or in fluence is allowed. They simply don't have enough population that could be taxed or a economy large enough to pay back their debt.  And tourism is in the tank. So what does the European Union, through the International Monetary Fund (IMF) do? Give them more loans they can't repay! Those loans come with a price tag Greece can't afford, Austerity Measures.  Hence the riots and protests we've seen including an attempt to change their government leadership.  Greece will soon default on their loans to the World. It is inevitable.  More European countries will follow. It could result in the end of the Euro as a currency.  America's focus on the Greek crisis is from the perspective of what will happen in the USA if we don't control our debt here.

US Debt.  Our Annual Budget Deficit has tripled since 2008. Our National Debt is up by 30% or $4 trillion dollars in the same time. We now owe $14 Trillion dollars. We are in a runaway debt situation that's about 10-15 years behind Greece. Austerity Measures, like what the Greeks had to accept to qualify for their new bailouts, are a possibility here. What are they? Unimaginable tax increases of 100% or more, layoffs on the scale of 50% of the government workforce, and selling of our national assets and treasures. Our Congress is attempting to make a few tough choices today. Frankly, they are a DROP in the bucket to what we really face in the future.  It's time to start figuring out how to pay the bill in America.

Personal Debt.  If you have it these days, you can't get any more. Most don't want what they have, let alone get any more. But if you wanted to borrow, you couldn't in this new world of credit. If you have a lot of debt now, you won't be borrowing for the next decade. You can't get rid of it except for two ways. Pay it or default on it.  Debt is stifling the US economic recovery, preventing banks from lending and restarting our economy due to tighter regulations on acceptable levels of debt to qualify for a loan. Consumers account for 70% of the US economy. And when they can't borrow, the economy falters.

Moral Debt. Yes, that too. It seems to be acceptable now not honor a contract, an agreement, a loan. If things don't work out, walk away, and in a few years try again. Moral hazard is the biggest risk to the timeless historical values and ideals that developed in the middle ages or earlier,  creating the basic principals that shaped modern business and finance as we know it. To lose it, we lose the basic foundation that civilized commerce is. If you believe in walking away, then why shouldn't we in America just default on our World debt as well? Why shouldn't other countries not honor their debts to us? It would only take a few weeks to completely destroy commerce as we know it. Oh, and the credit/debit cards and dollars in your pocket would be worthless before you could draw them out and spend them.

Refusing to deal with debt will allow it to consume us. We have seen so many theories about the end of days. Asteroids, volcanoes, ice ages, aliens and solar flares.  Debt and the potential for moral default, while much less sexy, can be the thread to unravel everything we hold so dear.

D

The Debt Ceiling and Politics

There's alot of talk about August 2nd.  That's when the USA reaches its debt limit.  The charge card is full, maxed out. Now what?

Two things are possible. The first is that the US defaults on its debt obligations. We don't make our interest payments to the Chinese, Japanese, and most of Europe. Even Russia holds our debt. Debt in the form of US Treasury Bills (Govt. CD's) and Collateralized Mortgage Obligations (CMOs) which are bundles of, you got it, home mortgages, some surely right here from mid-Missouri.  No one likes to hold loans and not get payments, so the World dumps our debt on the open market. Value of our debt plummets causing our cost of our borrowings to go from about 2% to about 8% our budget deficit would grow from $1.6 Trillion to about $4 Trillion per year. The higher interest rate would crush our economy and nation. Bread would cost $25 per loaf. Austerity measures like those being imposed in Greece would come home to the USA. Higher taxes, layoffs and huge reductions in US Govt. services.

Even without this scenario, we are only paying the interest on our debs today. We aren't even thinking of repaying any principal! Think of a credit card you can't even make the minimum payment on, which includes some principal. It's never paid off.

Scenario two:  The US hits the debt ceiling, and like most folks when expenses don't equal the checkbook, you cut non-essential spending. You don't pay the bills that don't have to be paid.  The USA would close parks, cut back on foreign aid, furlow some government workers, and just spend less until things are worked out. Actually, we would make our interest payments to the World. There's no doubt about it. We have enough coming in to the US Treasury coffers from tax payments and revenue sources to make those interest payments, at least for the short term.

Now why all the fear mongering about August 2? Simple, we are nearing 2012 which is an election year. Our government is broken, and no one can make tough choices because they are more worried about re-election and catering to special interests. So nothing will get done until after the 2012 elections.  We will have several short term spending bills and small increases to the debt ceiling until then.  And hopefully we elect some people that can fix our broken system.

D

Housing Price Recoveries Expected to be Years Away

In light of new data issued this week that shows the recovery in home prices is still a long time away, I have re posted an October 2010, blog.  Frankly, unless you are expanding a family, relocating, or downsizing, trying to sell in at these price levels doesn't make a lot of sense.  The chart below shows the expected recovery times in America by state. It's not pretty:

What we see is that the states with the highest run up in prices during the 2005-2007 period had the farthest to fall, and the longest to recover.  Further those hot markets built the most homes in that time period as well, so there is a lot more inventory sitting as well in these states.

Further this price correction eclipses the housing price declines experienced in the Great Depression as well.  From 1928-1933 the decline was 25.9%. As of today this most recent decline is 32%. The percentages are based on the Case-Schiller 20-City Price Index.

I think the best we can do at this time is what i said last October. Rates are low, refi into the best rate you can get at this time, shorten the life of your loan, and ride out the bottom that we are in.

D

from: Monday, October 18, 2010

A House That is Worth Less Is Still A Wonderful Place to Live

I just refinanced my home. Guess what? It's worth less than I paid for it. So, I immediately have all the same thoughts that you do about your house and its value. First, OMG! What do I do? Sell, upgrade, remodel, ask for another appraisal? Then I think the obvious. I have a wonderful home in a nice neighborhood, and I enjoy the roof over my head. I can paint it the color I want. I decide when the grass is cut and how to shape my River Birch trees in the front yard. It's mine.

What is most striking in my thought process is the one thought that didn't cross my mind, and that's walk away.  I have a contract with Freddie Mac (the Government). It says I make my payments and they let me own a home, and they let me stay there without interference.  If I sell my home and make money on the sale Freddie doesn't get a cut of my profit. It's mine. Likewise, if I lose I can't send them the loss or blame them for my choice of buying in the first place. That's mine too. They held up their end of the deal and I hold up mine. 

It seems that this contract of mortgage, created in the dawn of finance, is up for re-negotiation. And, as the national home price chart below indicates Missouri and the mid-West isn't that bad, and we could be a lot worse off. This is a year-end 2009 chart, but I think the worst damage to home prices is behind us, and while we may slide a bit more, I don't feel it will be significant.

So, if we decide to break contracts solely when it favors our interests, what would happen if others did the same. Like when you almost have that home paid for and out of nowhere Freddie comes knocking; "hey this is worth a lot more than you paid, cut us in for half, or we are taking your home...". Or, you're in the ER with a little one needing stitches, and the hospital decides to break their contract with your insurance provider just because it benefits them? The beginning of a moral unraveling of contracts in our modern society would see no ending. 

No one, including me, likes to see their home value go down. However, a contract is a basic building block for trade and the fulfillment of a contract is the foundation for business as we know it. There is one other possibility to consider when thinking of all the options. With interest rates historically low, consider refinancing your home with a bank with low closing costs. Take the opportunity to shave years off the life of your loan. Quite possibly, the decline of your homes value due to this crisis may be offset by a much, much lower interest rate and it may be more of a positive than you think.  An opportunity of a lifetime to pay off your home quicker, due to the same crisis. In the mean time, your home is your castle, and no crisis can change that.

D

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Planet X (Niburu or Nemesis) and June-December 2012

I love conspiracy theories. I love talk of Alternative Science. It's the science that the government "doesn't want you to know".  Actually, true or false, it is important to look at alternative views. It's how we got space flight, airplanes and a round Earth.  They take us off the everyday grind and make our minds whir.  And just for an instant, its not just the stuff movies are made of, but could it be possible, could it be real?

I have taken the liberty to reprint a very good description of the story of Planet X (Nemesis), because frankly it takes a Alternative Scientist to explain it. I am reprinting a post left on the website http://www.gizadeathstar.com/ from a poster named only as Bill. Bill, you're one smart guy and this credit goes to you!  I did clean up some grammar. Sorry, Bill.  Here it is in all its tantalizing detail:

PLANET X (NEMESIS) & JUNE-DECEMBER 2012

"The reason for not announcing Planet X (Nemesis) it is due to religious beliefs and fear it would cause the world to go into panic. It was discovered by NASA’s IRAS spacecraft, first capturing infrared images of it back in 1983. It was announced on Paul Harvey News as a possible 10th planet and our government realized the implications of this incoming body which has its unique elliptical orbit around two suns.  (Our Sun has a dead companion known as a brown dwarf).

It has turned into a national security issue. Our government knows and is afraid of panic. The whole story of Planet X, (Nibiru), one of many names for Planet X comes from ancient clay tablets dating to 4,000 BC, describing a 10th planet and the life on it. They were called the Anunnaki, which means in the Sumerian language “they who came from heaven to Earth”.

The Sumerian lands are where IRAQ is now. Ancient Sumer was the first civilization on Earth (to date). It was ushered in by an alien race called the Anunnaki. 

(Editor's note: The Anunnaki were from a planet called Tiamat, which orbited our Sun between Mars and Jupiter. It was destroyed upon collison with a moon or body after Tiamat's orbit was disrupted by Nemesis in a past orbital visit, and the debris from Taimat's destruction formed our Solar System's asteriod belt)

The Anunnaki taught the Sumerian people music, sciences, astronomy, languages (both spoken and written), mathematics, dense agriculture, manipulation of the environment, crop genetics, genetic manipulation of livestock, religion, sexual promiscuity, war, mining for resources, jewelry-making, tailoring, blacksmithing, architecture, art, poetry, human sacrifice, and the whole gamut of “civilized behaviors.” In fact, these events are not only outlined in the writings of the ancient Sumerians, but also in the Bible, the pseudopigraphia of the Hebrews [1] and the ancient texts of the Hindu.

The word Niburu means "bright star". It has a history or else I would dismiss all this as BS. These Anunnaki were giants, 8-10 feet tall. They used Earth's inhabitants to dig for gold they needed for their atmosphere. I believe in UFOs and the possibility that these aliens were the cause of most all religions. This is what our government is afraid of us finding out: the real truth.

I have been studying Planet X’s history on www.xfacts.com/x1.htm, http://www.sitchin.com/ ,and http://www.zetatalk.com/, for 5 years now. Planet X orbits two suns about every 3,657 years and is in our solar system now. It is 4x the size of Earth and has a mass 23x that of Earth’s. Planet X has many names from most countries; the most common name is Nemesis. This is what’s causing Earth's changes and the disasters we're seeing today. Our planet weighs nothing in space and any magnetic disturbance will have disastrous affects on Earth's weather and tectonic plates (earthquakes) and volcanic eruptions. Planet X caused the Great Flood of the Bible, as a pole shift melted the polar ice caps. It was the cause of the sinking of Atlantis into the sea. This coming pole shift will be worst the Earth’s outer crust has yet seen. The poles will rotate 90 degrees because the Earth will line up with Nemesis as it crosses our skies.


The Bible calls Planet X (Wormwood).

The Incas called Planet X (Hercolubus),

The Babylonians called Planet X (Marduk),

The Egyptians call it (The Destroyer),

The Hindu astronomers call it (Treta Yuga) and the destruction it causes Kali Yuga.

So it has a history which makes it real to me. Almost every time it comes into our Solar System it affects the surface of every planet it crosses. It’s coming in from our blind side (sun side). There seems to be a Government cover-up on this subject matter. Why? Do they fear panic? We must warn people for survival reasons...giving them a fighting chance to survive it.

To summarize what I’m saying here: I was inspired by the 50 years of work done by Zecharia Sitchin who translated the ancient Sumerian texts written 6,000 years ago. 

(Editor's note: The Sumarians had a knowledge of Astronomy, as shown in the tablet below, that far exceeded their other advances in knowledge. Even today, NASA is just now confirming with modern technology many of the descriptions of our Solar System the Sumerians had made over 4,000 years ago. )

The Dark Rift (the Equator of our Galaxy) is coming on 12/21/2012. It will cause a polar shift on Earth. This Dark Rift comes about every 25,800 years. At the Equator of our Galaxy is an extension of the Black Hole of our Galaxy. The Black Hole pancakes out from the center of our Galaxy; like an old black vinyl record where the turntable is the Milky Way Galaxy. It is full of debris, meteorites, meteors, asteroids, and dust. It's all the leftovers settling from our Galaxies birth.


The Earth and our Solar System are passing through this belt in 2012.

Proof: Why is our Government blocking out coordinates 5h 53M 27s -6 10′ 58 from Google Sky?

Ice cores taken from Antarctica and Greenland show recurring dust levels at precise cyclical intervals throughout history.


The South Pole Telescope (SPT) has photos of incoming Planet X (Wormwood).

During these interval's extinctions or gaps in Earth’s history have occurred. Ancient cities (Atlantis) off our coast lines have been lost in these cycles, swallowed by the sea.


There were ancient cataclysms in the past. Are we too naive to know that history repeats itself?


Our Galaxy has magnetic North and South Poles, which means when we cross the Equator of our Galaxy, the Earth will have a physical Geological Pole Shift. Mega earthquakes are expected at the least. The debris, meteorites, meteors, asteroids, and dust may bombard us as well. Every Galaxy has a debris black belt like ours at their equators."

I'm back. After you read this a couple of times, I hope you get the jest that Planet X is entering our solar system, flying by in June 2012, and generally make a mess of our planet by December 2012. Most ancient cultures believe it.  Do you?


I guess we will see in 14 months...

D

Will We Sit Back and Do Nothing About the Cost of Oil?

Gas prices bottomed out at $1.61 per gallon in January 2009. This morning I looked out the window and it's $3.49 per gallon. That's a nearly 120% increase in 2 years. We as a nation have done nothing since our last oil scare in 2008. Unless you call bailing out GM and their poor management. And the US taxpayer paying into their hugely unfunded union pension coffers.  We screwed over the common shareholders, and what we got was the Chevy Volt, a car that will go 40 miles between charges. Now, its 2008 all over again but instead of paying $3.50 for a gallon, this year we are looking at $5.  Wake up America!

Our energy policy hasn't changed forever. We think raising the Corporate Average Fuel Economy (CAFE standards) a few miles per gallon over 5 years really does anything for America's fuel economy? No! Trucks and SUV's don't even count in the formula. How come some cars get almost 50 mpg, but most get 18?  Because they can't achieve it? Really? The chart below shows the rest of the world can, so why can't America.

Obama has a moratorium on drilling. The world is also wanting to pull nuclear power off the grid as well. A new oil refinery hasn't been built since 1974. Don't use coal is produces carbon. Even if we were to ramp up electric cars and solar/wind energies, we will remain grossly dependent on oil for another 25 years. We have enough oil in North America to handle our demand. Enough that we wouldn't need any oil from the Middle East.  We just arent producing it. Why? Look at the chart below:

World consumption, especially in developing countries like China, India, and Brazil is skyrocketing. Any unrest like we currently have in the Mid-East, any little problem, and oil skyrockets again.  Look at the estimated world consumption in this chart:

Does it take a rocket scientist to realize that gas is headed for $5/gallon and then even higher. It's already that price in may places all over the world. 

There is no plan for America in sight. We have no leadership willing to tackle this problem. It may cost them "votes".  We have to make changes and develop a plan now. Any plan implemented will take years to develop.  We need more fuel efficient cars. And we need to drill and develop our own natural resources. If we don't I hope you enjoy a future of long lines waiting for rationed fuel. Tiny cars. And much higher prices at the pumps.

D

Are Things Getting More Expensive?

It seems like more and more when I get back from buying anything at the store I have less and less. I went to get groceries and I came in saying, "You know, I remember when groceries averaged $20 a bag, and now you cant even touch them for that...".  Well, it's true. Wholesale prices rose the most in 36 years last month. The chart below shows the CRB foodstuffs index.

What is going on? Well, how about a quick look.

Oil)  Oil was $1.61 per gallon in January of 2009. Today it averages $3.54 a gallon today, a 120% increase in just over two years. Everything gets transported in one way or another and oil is consumed. The further it travels the more it costs.

QE) Quantitative Easing. Look back at my older post for an explanation on QE2, and my thoughts about it making commodities go higher. Oil, Gold, Silver, Wheat, Beans, even Coffee. It's an explosion of food price increases across the globe, including Cabbage. Yes Cabbage! In third world countries this is enough to start revolutions, since eating is the central task in life to them. 

Now it's hard to prove that QE2 has been single handedly the cause, but consider this: The FED is pumping $70 Billion in cash per month into the World economy. The FED's balance sheet was $895B in September 2008. Today it's $2.55 Trillion!  That's a lot of money floating around the world competing for the same products. Hence, higher prices.

World Unrest)  Markets hate uncertainty. Uncertainty leads to hoarding of commodities for fear the World may run out of them. This drives prices up. Just look at Oil. Protests in the Middle East drove up our gasoline 50 cents a gallon in a few days.  And the feuding countries only produced about 3% of the worlds oil.

Weather) Freezing crops in Florida and South America. Quakes and Tsunamis in Japan. Record snow in the Midwest. Flooding in the Northeast and fires in California. Food is more scarce this year, worldwide. Corn and Beans have nearly doubled in one year.

The question is, "Where does it end?" Well its one less bag of groceries or even two, if this persists.

D

Are We Nearing the End of the 30-Year Mortgage?

The future of the 30-year mortgage is in question. Debate centers around the fact that 30 years is too long for a home loan.  Systemic risk to the financial system grows with longer time durations. Banks that make loans for this length of time subject themselves to this risk. Equity in the home is built at a snails pace, allowing borrowers to walk away with little loss to themselves if they fall behind.

Community banks cannot loan money for this long safely in-house, so they originate and sell those loans to government agencies like the FHA, VA, Freddie Mac or Fannie Mae. We have no way of knowing what life will look like 30 years from now, nor what could possibly go right or wrong in the world. It's between 1/3 and 1/2 of a generation! 

Most home loans never get paid off. The average life of a home mortgage lasts only about 7 years. They payoff due to sale of the home, a fire, refinance, or a host of other events that come along. So, is it wise to loan money for 30 years when you will statistically only have it for 7?  We don't do it for our cars, so why do it for our homes? Simple, to make the mortgage payment affordable, and people can buy more house. We take out these loans and most us of know at signing that we will never see the day when they are paid off. That in itself is a risk.

If we make home loans shorter in duration, say 8, 15, 20 or a max of 25 years, we reduce risk to the system. Less risk is good. This will cause much, much higher monthly payments. Larger payments build equity in a home faster. This reduces risk of the borrower walking away because they won't want to lose all that equity. But, bigger homes will become unaffordable for most people, unless they have a larger cash down payment, say 20-40%.  Otherwise the payments will simply be too high, and they can't qualify for the loan which is based on their income. This will add downward pressure to larger homes, and thereby extend the pain in our economic recovery in the housing industry.


Either way, change will come.


D

Freddie & Fannie Bailout Plan is Sure to Make Rates Rise

If you have or haven't heard, the Feds came out with a plan today to revise, change or eliminate Mortgage Giants Freddie Mac & Fannie Mae.  If you include all government mortgage entities, the US Government and US Taxpayers now do 97% of all home loans in America today.  They have effectively wiped out the private mortgage and securitization industry. Government can't do anything better that private industry can! We are currently losing Billions each quarter with these two losers.

It is estimated that the losses due to the relaxing of government lending standards in the 90's will cost the U.S. Taxpayer between $2 and $11 Trillion dollars when it's all said and done. This push into subprime lending by the outgoing Clinton Administration and Rep. Barney Frank D-NC, whose boyfriend worked high up at Fannie Mae by the way, will possibly double our National Debt! This exceeds all the bailouts of GM, Chrysler, AIG, Banks, TARP, and stimulus measures to date combined!

If you think it's hard to get a home loan now, just wait, Here are the few bullet points I gleaned from the press release this morning:

• Reduce the governments share of the mortgage industry from 90% down to 40%. (make a lot less loans)
• Raise Rates! (a lot less people can afford loans)
• Raise Credit Score Requirements (less people can qualify)
• Reject More Applications (less approvals)
• Charge Higher Closing Fees (more money to pay at closing)
• Implement a minimum of 10% Down (more skin in the game)

This will be catastrophic say the Realtor's, as less people will qualify to buy anything, and they like to sell houses! Supporters say that the private mortgage industry will come back into existence and fill the gap.  You decide. Either way, there are more bumps ahead in the road for housing and home finance.

D

A Tragedy From Sea to Shining Sea

President Obama was the most Presidential acting I've yet seen this past weekend. He wasn't bowing to Communists or Dictators. No, on Saturday, he was our President. Everyone's President. An assault on what makes America great had just occurred and he wanted us all to take a pause.  An assault on Democrats, Republicans, Independents, Libertarians and Tea Partiers alike is really an assault on Democracy itself. If the people cannot interact with their government, then Democracy is lost.  Most Presidential of all, Mr. Obama refrained from taking an American tragedy and a time of mourning and turning it into something for political gain.

That didn't stop the New York Times, NBC, NPR, and an Arizona County Sheriff from doing the despicable. Blaming a political party for what had happened. Really? Have we really stooped that low? Jared Loughner was a certifiable maniac, already known as such by the very same Sheriffs Department that played the political card. Loughner's favorite books are reported the be the The Communist Manifesto, and Orwell's 1984.  About two years ago Loughner was immersed with ideal that life "was just an illusion".  This guy isn't a Republican, a Right-winger or Tea Partier; He is a Nutcase!

But why? It's been reported Loughner was angered several years ago when Rep. Gabrielle Giffords answered one of his questions, not in English, but in Spanish. Truly why we may never know. Take one look at his picture...look in his eyes and you notice that nothing is staring back at you. He is evil set upon this Earth incarnate.


We as Americans cannot let this assault on Democracy and the very right to agree to disagree, to exhibit free speech, to hope for change, and to throw out the old and bring in the new to end.  We cant blame Sarah Palin's rhetoric any more than we can blame Loughner's girlfriend because she recently broke up with him. If we were to outlaw Palin from politics, do we outlaw girlfriends? Would we blame the Spanish language for the answer given by Giffords? No.


Lets keep this tragedy what it is. Something that "...brings Americans together, not tears them further apart...". Let us pray for the families of those enduring loss tonight, and for Rep Giffords recovery.  Mourn the loss of a 9-year old Student Council President, Senior childhood sweethearts separated, and a 20-year old intern among 3 others. Yes, our President looked very Presidential Saturday. Can we as Americans equal that strength in the way we handle this loss? My sincere hope is that we can.


D