Monday, March 26, 2012

Windmills of Economics Experts' Minds

~ Round n Round the windmill goes-- Where it stops, only the 'experts' know

Let's say you turned on your local news for the weather forecast-- she/he says it will be 75deg and sunny.  In reality, its 55deg and cloudy.  Then the next day, she/he says it should be 72 and a light drizzle.  The weather ends up being 60deg with hard rains and wind...

Question:  How long before you stop believing and/or going to that source?

In the lovely and evil world of finance, its much similar--  every month so-called 'experts' give inaccurate expectations based on data they've glossed over; opinions which are treated by politicians, investors and lazy media as valid.  If the projections are high, then the media runs with it until reality shows the numbers aren't quite so good.  Then they spin the optimistic yarn of gradual recovery.

If projections are low, simply make them appear to be much worse so you get the bounceback of 'bad' numbers that look good in comparison to the expectation.  And thus the smoke & mirrors act of economic 'recovery' can continue to be played...

Either way, the 'experts' who predict what the jobs, housing and economic growth reports are each month proven to be worthless

Last week we demonstrated this truth through how bad new housing was for February compared to how it was being spun by media and government.  (

Here's part 2:

When it came to pending home sales for February, the 'experts' expressed a hope of 1.0% gain.  National Association of Realtors Chief Economist and Paid Liar, Larry Yun stated beforehand that,  "The spring home buying season looks bright because of an elevated level of contract offers so far this year"

For some reason, reading that, we thought of that 80's one-hit wonder song that went, "The future's so bright, I gotta wear shades.."

So what was the official data for Feb.?

-0.5% growth in pending home sales.

Combine the two figures, and the experts were off by 1.5%   It doesn't seem like a big number but it shows a continued trend of housing weakness and no amount of boldfaced lying by the NAR and others with economic and political agendas to see housing rise out of the blue, is going to change things.

January's data saw a spike due to unusually warm winter weather especially in the Northeast US..  Wonder if that warm weather will be turned into the scapegoat for a poor February?

Tomorrow, Case-Schiller will be posting its data on average home prices.  So far it has gone down for 7 consecutive months..   Sure seems like it will go down an 8th?
It really is amazing how genuinely stupid people are in the professions of finance or housing. They should know better-- it is their livelihood after all, but are utterly clueless to the point that they snap up any piece of pollyanna positive string cheese dangled & drizzled over their snouts.  Then again, making money isn't about knowledge as much as its the perception of having it.

This is from CNBC.. it explains that March is looking to be a bad month for housing, but notice how the thoughts are expressed in such a way that everyone is shocked and surprised (when no one should be):

"Housing was charging back. Spring sprung early. Sentiment among home builders doubled in six months. Any talk that the fundamentals might not be supporting the sentiment was met with harsh criticism. And then suddenly it wasn’t. A slew of new housing data last week disappointed the analysts and the stock market, and all of a sudden you started to hear concern that maybe housing wasn’t exactly in a robust recovery.

"From home builder sentiment to housing starts, to home builder earnings right through to sales of newly built homes, there was not one hopeful headline in any of it...  An email from a Realtor in New Jersey: “Just reviewed March buyer clicks, Google’s analytics on all the sites we monitor – March is turning out to be the weakest month since last October ""

When you think of economics, think of basic physics.  A windmill isn't simply going to move without some kind of force or exertion from something-- wind, gravity, a person touching or blowing upon it, etc...  Without that force, no amount of wishing, hoping, praying or Jedi-mind trick is going to make that windmill spin.
Economics is the same.  If housing is to ever improve, there has to be policy that provides force for such movement.   Sure, interest rates are all-time low, but they're staying low for a Longggg time thanks to Fed policy.  So when a "sale" price goes on indefinitely, what is the impetus for someone to buy today vs tomorrow or next year?

If housing is ever to fully recover, four things need to occur simultaneously:

1)  Mortgage restructuring combined with partial debt forgiveness for underwater and struggling homeowners, and closing costs on restructuring, must be reasonable

2)  Credit requirements must be weaken.  We know people will say that's why we got in this mess-- people buying houses they're not able to afford.   No.   What happened was mortgage lenders didn't care what the borrower's credit history or income was because the mortgages were to be sold off to others the second the ink dried from the lendee's signature.  This goes to point #3..

3) There was no risk on lenders, and thus no incentive to exercise caution.  Legislation would need to be enacted to place a good deal of risk back upon the initial lenders even if they swap out the mortgages again.  And vitally of importance, that the banks and other lenders understand that future bailouts on losses is not possible. If they collapse, fine.  And if it threatens the national economy, they'll be Nationalized then broken up into little banks.

Welcome to real Capitalism-- sink or swim on your own.

4)  Lowering of minimum amount to buy a home.  It used to be around 3% deposit we believe prior to the real estate crash.  Now we think its 10-15%.   Most people do not have that much cash accessible to put on a house and its slowing the ability of people to acquire a home, thus pushing them into renting.
In order for sellers to retain a fair market value when selling their home, their needs to be more real buyers, not carpetbaggers and professional distressed home purchasers who offer pennies on the dollar.   And in order for real buyers to be created, they have to know there's a good chance they'll be approved and without every penny in their nest egg going into the deposit.

There is no housing recovery because government, like with jobs/unemployment, have done Absolutely Nothing to sincerely try to fix the problem beyond keeping the current system as is.  Until that changes, there will be no change in the real economy.

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