Interesting discussion on negative equity in this week’s Barron’s. Citing Stephanie Pomboy’s recent missive, Alan Abelson takes a closer look at some of the negative details around corporate profitability and homeowner equity.

When it comes to Homeowners Equity, the official data is misleading. Why? Pomboy notes the Fed data is accurate but misleading. It includes both the homes with mortgages and those owned free and clear.

Why is this significant? About a third of homes have no mortgages whatsoever. The unencumbered properties improve the homeowners equity data from the Fed’s Flow of Funds report. Add in 33% of homes with 100% equity and it skews the data. The total looks better.

before you say “So What?” co the following:  We know that those homeowners that do not have mortgages — i.e., 100% equity — cannot default. So if we want to understand the potential further mischief real estate land can cause, it is the mortgaged properties we should be watching. Back out the third of home owners that have no mortgage — the 33% of homes with 100% equity — and the Fed’s measure of 43% net equity drops precipitously.

Thus, Pomboy’s assertion that it would be more informative to say that those homes with a mortgage have homeonwers equity of less than 15%.

Here’s the Barron’s excerpt:

“The complacent reaction among the investment cognoscenti is that the credit markets are wildly oversold. More likely, she sniffs, it has something to do with the fact that “an overwhelming portion of some $8 trillion in mortgage debt (or 80% of the total) is teetering on the edge of, or in some state of, negative equity.”

As to the Fed’s claim that the equity of homeowners as a group stands at 43%, she points out that what the Fed neglects to tell you is that roughly a third of them have their houses free and clear. Lo and behold, some basic arithmetic reveals that 67% of homeowners with mortgages have equity of less than 15%. That, Stephanie comments drily, suggests the “destruction priced into the credit markets hardly seems out of whack with potential reality.”

And while, thanks to “the transfer of toxic assets to taxpayers” and the magic of accounting legerdemain, the scarred financials to some significant extent may be spared further pain, the same, alas, can’t be said for the nonfinancial sector. Little recognized, she insists, is how much the extraordinary gains in domestic nonfinancial profits from the low in 2001 to the peak in 2006 — a stunning rise of 388% — owed to the housing bubble.”

Ouch . . .

>

Source:
Shotgun Wedding
ALAN ABELSON
Barron’s May 4, 2009
UP AND DOWN WALL STREET

http://online.barrons.com/article/SB124121846529378831.html

Category: Credit, Earnings, Economy, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

39 Responses to “HomeOwner’s Equity: Less than 15%”

  1. Marcus Aurelius says:

    Similarly to the old saying in stocks: You don’t gain or lose until you sell, this housing data is all about the theory, at the expense of the reality.

    15% equity? Can you borrow against it? Can you sell your home and realize the gain? In this market? Are you freekin’ joking?

    The housing market is in decline. Sales of existing homes are declining, the inventory of new homes is increasing, and the builders are still breaking ground — forcing more inventory onto their already log-jammed balance sheets and competing directly with those who purchased homes from them within the past couple of years.

    Not only will this not end well, it will end worse than anybody — even I — thinks it will.

  2. Bruce in Tn says:

    http://www.nytimes.com/interactive/2008/07/20/business/20debt-trap.html

    This is an interactive article from the NYT about our massive increase in debt…

    I think Steve Barry must have ghosted these two…

    My brother says that Ellison has not sent any word downstream about what the new company will be like…nada. He is involved heavily ina new server anyway, and it is going well. He left SUNW (java) a few years ago to work with a start-up that went BK, but went back to sun afterwards, and got his old position back with more pay…good, I guess. They all know Ellison’s penchant for layoffs after aquisitions, so even though I don’t see how he could be laid off, I suppose it is possible. Mark, unlike you, I don’t think they got Sun for a song, primarily because the old management was so fixated, but with the new boys in town, you could be right if management can successfully meld software with manufacturing of hardware. In the last twenty four months, my brother has hired one new EE, and this was an intern from California who had worked for them for two summers…he is doing more and more consulting work, which he’s done for years, but the amount of it is steadily increasing. But his work is not typical of the tech picture in California at present. He is also not a fan of Pelosi, and thinks the vote in May will be down on all the propositions on the ballot.

    Franklin, I have been doing a fair amount of reading this morning, and you’ve convinced me to stick my toe in again….but not in US equities…we’ll see.

  3. Bruce,

    two things SUNW’s R&D is widely unknown/ and to your point, about consulting work, SUNW has the apps to bring Server Utilization, that is generally low, Up.

    see: http://www.hpcwire.com/features/17910684.html
    …The DARPA program — called Ultraperformance Nanophotonic Intrachip Communications (UNIC) — has the goal of “demonstrating low power, high bandwidth, low latency intrachip photonic communication networks designed to enable chip multiprocessors with hundreds or thousands of compute cores to realize extremely high computational efficiency.” …
    and,
    GSS wanted to reduce cost and complexity of building and operating test systems. The company also wanted to support Solaris, Linux and Windows environments and increase responsiveness of systems. This was solved by implementing a Sun Fire X4200 server and installed VMWare. The combination replaced 10 Intel servers. Now GSS is experiencing higher productivity, increased server utilization and a rapid return on investment.
    http://whitepapers.zdnet.com/abstract.aspx?docid=286502

    as, but, 2 of many available examples..

    as an aside, if peep ever figured out how much MSFT has cost this Economy, it’d do wonders for them..

  4. crispyandcole says:

    Or you could say this….67% of this country has no mortgage at all! 33% of homeowners and 34% of the renters in this country!

    ~~~

    BR: Yes, but does saying that provide any insight as to the probability of future foreclosures, and the economic ramifications thereto?

  5. larster says:

    While I agree with Pomboy’s premise, the actual equity numbers vary widely from region to region and avg equity is not that meaningful. The fact renains that both coasts and Fla. have huge negative equity issues that will only get worse as the Alt A’s reset. I also think that most people understand the impact of HELOC on non financial profits.

  6. dead hobo says:

    Bruce in Tn Says:
    May 3rd, 2009 at 9:26 am

    Franklin, I have been doing a fair amount of reading this morning, and you’ve convinced me to stick my toe in again….but not in US equities…we’ll see.

    comment:
    ——————-
    I haven’t been following your dialog with Franklin so I don’t know exactly what you think you might wet your toe with.

    If you’re thinking of emerging markets because if the 2x to 3x rise over US and Europe, this is a sucker bet. Emerging markets always rise AND fall at a 2x to 3x rate over US equities. In fact, once the markets stabilize again, someday, I plan to again put lots of free cash into emerging markets. And also take it out quickly whenever markets turn.

    I’m still of the belief this is a sucker rally, but am happy to see regular patterns of stock market buying return. Unfortunately, the market is disconnected from the economy and infinite fantasies about green shoots are keeping the fools interested. Ignorance and exceptional salesmanship, both supported by media hucksters, are helping.

  7. Transor Z says:

    In Mass. they reported a -16% YoY price decline in RRE for March, a bit less than the -18% nat’l average.

    Noting that the 15% is average equity, that suggests to me that there are significant underwater balances in the mix. You should probably back those out because we know those folks are fucked. The question is how many will be pushed over the edge as prices drop another, say, 8%-10% in the coming 12 months.

    I just don’t see how anybody can require less than 10% down in 2009 unless it’s backed by FHA/VA or another USG program. It’s just nuts.

  8. jdmckay says:

    Great article, thanks.

    Just got’a mention that it is meaningful distinctions such as these which paint a picture which can’t be denied. And as your post (Overshoot Unwound) honoring Santoli’s attempt to ignore all this stuff, and incredibly, bs his audience w/implications actions (“financial crisis”) based on these realities were some kind of knee jerk bearishness, that everything is really ok, that we have a “strong foundation”…

    Again, as I said in comments to that article, it’s incredible. I know tons of professionals from many disciplines who were near retirement or just past it… who have lost near everything. Literally. A MIT ME doctorate w/30+ years at Sandia… wiped out, out of work (retired last Nov.), and w/no prosepect in current environment for employment beyond grunt work because over last 8 years nearly every meaningful economic endeavor, in areas society badly needs & which requires significant investment… it has all been abandoned.

    This is revealed in your posts:
    * Stress Test — or Reality Check?
    * Weak Imports Goose GDP
    * Ratings Agencies Abject Failure
    * Ugly Process: Rationalizing Insolvent Banks Existence
    * Our Next Troubled Bank: The Fed
    * Beware Insider Selling

    … and in particular, wrt housing:
    * The Elusive Housing “Fair Value”
    … which states context in which housing declines exist beyond the market itself: eg. many many factors summed up in generalization that pool of available buyers has shrunk dramatically because of economic contraction (layoffs), declining income, and generally unproductive US economy beyond Wall Street fraud…

    You posted article some months back on (from memory) “what you would like to see”, where you described something akin to a MANHATTAN PROJECT for economics whereby the economic cancer and fraud was cut out unmercifully, US’ best and brightest relegated to sidelines through this top down fraud based economy of recent years are put to work, and some meaningful Fed investment directed at these endeavors…. that for me is still today best metric for what we need here.

    But, unfortunately, none of that has happened… period. I walked the streets to get Obama elected, but have been dismally disappointed. He has drawn no distinctions, whether by declaration or action, to identify and kill crook’s behavior (theft) nor begin fundamental change. He’s done nothing in this regard.

    This market rebound is utter bullshit… utterly.

  9. jc says:

    A home purchase used to be a low beta financial event but not anymore.Mortgages, second mortgages and HELOCs are all (progressively) high betas now and the experts, the banks and brokers, never adjusted to that reality. I think non-recourse lending for real estate will be a thing of the past, assuming the bank lobbyists get to the states legislators.

  10. jc says:

    15% average equity means almost everyone who purchased a home in the sand states in the past decade, or who borrowed against their home value is substantially underwater. In addition to the waves of resets on the flakey mortgages – I mean creative financing – there will also be a steady stream of people moving, divorcing whatever who will be shocked to find they are underwater when they go to sell their home.

    With 15% average equity,a 6% brokers commission and falling prices we really aren’t that far from negative average equity. I bet that ain’t modeled in to the stress tests

  11. Greg0658 says:

    crispyandcole says “Or you could say this….67% of this country has no mortgage at all! 33% of homeowners and 34% of the renters in this country”
    or you could say the property tax payers = 33% minus government workers of that 33% … have just about all* the skin in the game for rebuilding the engine that BHO is preaching to fix

    *(the 33% of homes with 100% equity and all those other mortgaged homes with less than 15% equity)

    jdmckay 1st thanks and 2nd I’m sure you know (remember) BHO is a man .. not a god

  12. aitrader says:

    So much for the “green shoots” of recovery. This piece reads like one of ‘em shoved right up our economic keester. Ouch!

  13. Transor Z says:

    Another big question is what effect increasing bond yields are going to have. Higher mortgage rates and an exodus from equities into bonds? If the trend continues I can’t see but how that will work at serious cross purposes with what they’re trying to accomplish to stabilize things.

  14. leftback says:

    Everyone needs to read something like this every day to remind themselves of the mess we are in. Nothing kills future growth like a massive debt overhang (Exhibit A: Japan). Ours is larger and both private and public.

    Transor: the bond market has been much debated here this week since the break out above 3.00% on the 10-year. There are three schools of thought, which are not mutually exclusive:

    1) that the Treasury market is now broken, signaling inflation in the near future, and therefore the next trade we will see is a flood of funds from the bond market into reflationary equity and commodity trades.
    2) that the Fed will do a BoJ and enact multiple cycles of QE, since if the 10-year gets away here, mortgage rates will rise and corporate bond, muni and junk yields will get blown out, triggering a massive meltdown.
    3) we will see another deleveraging cycle as safety trades become attractive, maybe as we approach 3.25%, and we see a rotation of funds from equities into Treasuries.

    3) is the Gary Shilling/David Rosenbrg argument and that’s where I am at the moment – especially as we seem to be ending a bear market rally on low volume. As the year grinds on, we will probably transition from 3) to 2) and of course eventually we will arrive at 1). But we are not there yet.

  15. Transor Z says:

    @dead hobo:

    ZH will always be WAY over my head technically, but my little brain keyed in on the fact that a NYSE “six-month pilot program” was initiated at the end of October 2008.

    As a lay person, the goal of this program appears to be maintaining artificial price supports under key undisclosed NYSE equities by key undisclosed market participants. The SLP “group” is supposed to “facilitate price discovery” morning, noon, and at close.

    The old saw is that the Eskimos have 50 words for “snow.” I’m wondering if Wall Street and Treasury is doing the opposite with the word “liquidity” — jamming 50 very different meanings into one word.

    Maybe they finally got their picture of the Loch Ness Monster (aka PPT)…

  16. call me ahab says:

    Transor Z Says:

    “I just don’t see how anybody can require less than 10% down in 2009 unless it’s backed by FHA/VA or another USG program. It’s just nuts.”

    the market is all USG- conventional(Fannie/Freddie) and FHA loans are now to $729,750 (high cost areas)- most builders are scaling back on higher end homes so they can fit into these parameters for loan amounts- if not for the expanded FHA loans, which allow for 3.5% down- which can be all gifted- real estate would not be moving at all- that is the mortgage product of choice because the buyers do not have $$$- thanks Uncle Sam- you’re the best friend the homebuilders could ask for

  17. jdmckay says:

    Greg0658 Says:

    (quote)
    “jdmckay 1st thanks and 2nd I’m sure you know (remember) BHO is a man .. not a god ”
    (end quote)

    Obama skirted specifics throughout his campaign, but everything he suggested and promised was suggestive of enlightment, vision, “change” etc.

    His econ policies have made no meaningful distinctions between those that got us here, and those which are, at minimum, based on sound fundamentals as apposed to his rolling the dice w/Wall Street recapitalization (at taxpayer’s expense), $$’s that could have alternately been spent on stuff that’s really needed but Wall Street’s Bush years “free market” economy not only never addressed, but w/K-Street’s fully cooperative media machine discredited.

    “Alternative energy”, for one. Other than toxic debates over a bit more offshore wells and Anwar, the realities of peak oil, not to mention climate “challenges” (just this week we go memos saying Enron’s own research concluded early on CO2′s roll was indisputable as was projected warming, yet their media arm forcefully and effectively argued the opposite), food safety, water… virtually all of it ignored. In the absence of this development and investment, we instead got a bubble, built on fraud, the mechanics of which are still, incredibly, not only not comprehended by majority of US public, but now actively being ignored for another ripoff through a financial bubble that does not exist in reality.

    Obama came in with a huge opportunity… to define and explain all this stuff to a public and, more significantly, a large portion of electorate previously aligned w/Republican “free market” principals. Having lost huge portions of their savings under belief, but no understanding, of financial system operating invisibly under banner of this moniker, they abandoned Repubs in hope of something honest, but not comprehended.

    BO’s opportunity was to explain the realities, define the crooks w/a huge mass of available evidence, and bring resources of US to initiate fundamental rebuilding for stuff that matters.

    He did none of this… period. He obviously had no vision (or courage to act upon it if he had one), instead essentially continuing w/Bush bailout initiatives. He relied entirely on advice from this sector… period.

    He was the guy, w/opportunity to define, cleanse and rebuild, but chose to roll the dice instead.

    So ya, he’s human… we all are. He also did nothing to step into leadership in manner which he convinced myself and many other 1000′s he would. And he has fully, entirely ignored this constituency.

    W/BO, personally… I’m way past sense of betrayal, that I was had by his rhetoric.

    Rather, I’ve adjusted my future to accepting that what I do economically to earn income, invest, and participate in endeavors… all of it primed knowing that institutions designed to assure reliability of banks, disclosures, accounting and all the rest… that it can not be trusted.

    Period.

    AFAIC, he’s been an abject failure.

  18. km4 says:

    I walked the streets to get Obama elected, but have been dismally disappointed. He has drawn no distinctions, whether by declaration or action, to identify and kill crook’s behavior (theft) nor begin fundamental change. He’s done nothing in this regard. This market rebound is utter bullshit… utterly.

    Bingo and nice post jdmckay

    we crossed the Rubicon with Bush and so far team Obama has done nothing to readily address or materially change so The Triumph of the Banking Oligarchs that continues at huge taxpayer expense.

    Soros on Obama ( a billionare supporter )
    “He’s done very well in every area, except in dealing with the recapitalization of the banks and the restructuring of the mortgage market.

    Soros said the banking system is “seriously under water” with banks on “life support.”

    “They are weighed down by a lot of bad assets, which are still declining in value,” he said in the interview in his New York office. “The amount is difficult to estimate, but I think it’s in the region of maybe a trillion-and-a-half dollars.”

    Soros said the change to fair-value accounting rules will keep troubled banks in business, stalling a U.S. recovery.

    “This is part of the muddling-through scenario where we are going to keep zombie banks alive,” Soros said. “It’s going to sap the energies of the economy.”

    The “bugaboo of nationalizing banks,” which the Obama administration wants to avoid, means “we are nationalizing only one side of the balance sheet,” Soros said. “We gradually take over the deficits on the balance sheet. But we aren’t actually going to benefit from the banks recovering.”

  19. jdmckay,

    “…Obama came in with a huge opportunity… to define and explain all this stuff to a public and, more significantly, a large portion of electorate previously aligned w/Republican “free market” principals. Having lost huge portions of their savings under belief, but no understanding, of financial system operating invisibly under banner of this moniker, they abandoned Repubs in hope of something honest, but not comprehended.

    BO’s opportunity was to explain the realities, define the crooks w/a huge mass of available evidence, and bring resources of US to initiate fundamental rebuilding for stuff that matters.

    He did none of this… period. He obviously had no vision (or courage to act upon it if he had one), instead essentially continuing w/Bush bailout initiatives. He relied entirely on advice from this sector… period…”

    ably describes the tremendous Opportunity the BHO had to “Be Real”. Sadly, from his first pick, onward, it was “more of the same”, now! “with different spelling!”

    As you said, It has nothing to do with (D) & (R) the support was broad-ranging.

    It’s why it’s called “The Obama Deception”, and tags like: “Status QuObama” are gathering currency..

  20. PrahaPartizan says:

    “Green shoots”? Hmm,! Is that kinda like where the bullet is made out of an environmentally friendly alloy rather than lead and the propellant isn’t polluting too?

  21. bill_from_chicago says:

    Back in March the market was so desperate for good news that they were prepared to believe anything.

    If a company lost $1.8 billion in the first quarter, and the street thought it would lose $1.85 billion then that was deemed “massively positive”.

    And when house prices fell 2.2% in February, the market choose to focus on the year on year 18.8% in Feb, which was lower than 19% from the previous month.

    The morons at CNBC were revealing in this bullshit. The US Government is also hugely to blame for this false sense of recovery. They think that by saying 18/19 banks are well capitalized, that the markets will rally and that everyone will start feeling confident again, rush to take out loans and start spending ferociously. So much for Obama wanting to get away from boom/bubble scenario.

    Unfortunately for Obama, as more and more Americans lose their jobs, and as more and more loans go bad – things ain’t going to magically get better, regardless how they try and sugar coat things or which accounting rules they change.

    What are they honestly thinking, that banks can simply write off these trillions in bad debt off again future earnings, perhaps over the next decade? It actually makes me sick that my children and grandchildren will be paying for these greedy bankers for decades too come.

    Soros is so correct that Obama has missed a massive trick with the banks. He is turning a 2-3 year recession into 4-5 year recession. I would be very surprized if he gets re-elected in 4 years.

    Over the last 2-3 weeks as I have listened to hundreds of market commentators, more and more most are starting to believe a correction is due, and like some sort of tipping point, once crossed I expect longs to sell off very fast and the downturn to be violent. We may be 5% from the top, but I for one am prepared to lose that 5% so I don’t lose any part of the 30-40% on the way down.

  22. usphoenix says:

    The ZH article goes a long way toward explaining possibilities surrounding the market activity commented on here. PPT. ANd someone elaborated that TARP money was being used by the likes of GS to inflate stock prices. Looks more like the real deal all the time.

    Sounds like there’s nothing real about market activity these days. Handle with care.

    Observations On NYSE Program Trading
    http://zerohedge.blogspot.com/

    Recently, there has been quite a bit of discussion of Goldman Sachs’ principal program trading dominance in the NYSE, culminating with none other than Goldman Sachs themselves providing their perspective on the matter, via spokesman Ed Canaday:

  23. call me ahab says:

    @ usphoenix-

    I have few short positions on- makes me wonder if I am taking on Goliath- the feeling is that there is a concerted effort to make sure the stock market stays positive contrary to any market news or in tandem w/ fabricated/juiced financials- if true- would like to know the legality of this or if it could be proven at all-

    your advice “handle with care”- is well placed

  24. Transor Z says:

    I can imagine a class action lawsuit filed by shorts who allege that they lost money because of market tampering. All of the questions — who, when, what, how much — would be subject to disclosure on discovery. It would probably be an epic legal battle that would take years and years. But if the plaintiffs’ losses were in the hundreds of millions or billions, wouldn’t be hard to find top-flight representation. Definitely a story worth following.

  25. Steve Barry says:

    The extrapolation of Case-Shiller has been remarkably accurate since I did it a few months ago. I am convinced that the best possible case for the 20 city composite is another 25% decline from current levels…most likely 35%, worst case 40%. The bottom will occur in 2015 or later. I can’t quanify what this means for the broader economy or for consumer sentiment, but it is a good bet to say it will be the worst anybody alive has ever seen.

    When is the next leg down for markets?…any minute…with QQQQ Bullish levels at an unheard of 85%…II bulls over 60% and the low volume pump having gone way further than I imagined.

  26. Aeolus says:

    I continue to be amazed by the attempts to look at national trends in the economy, when it’s fairly obvious that we different phenomena, regionally, and by groups. For example the Wall Street journal reported a 6.2% per cent drop in sales tax nationally, but if you dug down into the data in the Rockefeller Institute Report, you could see that there had been double-digit drops in the three worst bubble states of CA, FL, and AZ, and a 3.2% drop in forty-seven states outside the real bubble states, where mortgage equity withdrawal at the peak was somewhere around 15% of disposable income.

    Similarly, there are some very distinct classes of homeowners. There’s a chunk of savers, the kind of people who were detailed in The Millionaire Next Door, who live frugally, save consistently, build assets, and either own their cars and homes outright, or have substantial equity. Here in the OC there’s a huge class of borowers, who have massive negative net worth now, since they kept borrowing and consuming at a torrid pace.

    I’ve documented some of this stuff here in the context of its impact on government spending, which is going to be one more leg down in the death spiral of the California economy.

  27. call me ahab says:

    SB says-

    “When is the next leg down for markets?…any minute…with QQQQ Bullish levels at an unheard of 85%…II bulls over 60% and the low volume pump having gone way further than I imagined.”

    Steve- what is your take on market manipulation?

  28. rtalcott says:

    OSU say no!

    http://researchnews.osu.edu/archive/homeequity.htm

    NATIONAL SURVEY FINDS HOMEOWNER SITUATION NOT AS BLEAK AS REPORTS INDICATE

    COLUMBUS, Ohio — Americans may own a larger share of their homes than is suggested by a recent Federal Reserve report, according to a new nationwide survey.

    In its quarterly report released last week, the Federal Reserve said that in 2007, Americans’ percentage of equity in their homes fell below 50 percent for the first time since 1945, to 47.9 percent in the last quarter. That means for most people, the bank or mortgage company would own a greater share of their home than they do.

    However, statistics from a national survey conducted by Ohio State University show that homeowners are doing better, with about 70 percent equity in their homes.

    The discrepancy may be because the Fed report fails to account for homeowners who have fully paid for their home and thus have no mortgage, said Randall Olsen, director of the Center for Human Resource Research at Ohio State, which conducted the new survey.

  29. constantnormal says:

    SB — glad to see you’re still around. I know you must be under some considerable pressure, and I hope you’re right — more for my sake than yours, however.

    Got my fingers crossed, as luck seems to be a much more valuable thing to have than logic or reason — always the case, but truthier now than ever before.

    May The Luck Be With You.

  30. Clem Stone says:

    I don’t understand why anyone is surprised by the extent of the current market bounce, unless you haven’t been following the markets for more than the past year.

    Of course there is plenty of negative data out there. Just like there was in Oct ’07 when the market was 80% higher than it is today. The difference being that a lot of the bad news is now behind us. Certainly more is behind us than was the case in Oct ’07. Maybe that means a level of SPX 1575 today is more reasonable than it was in Oct’07. Do i think we’re going there? Uh, no….just saying that this is far less crazy than lots of other times in the past.

  31. Steve Barry says:

    @ahab

    My take on market manipulation is that I have no proof of it…but it would be very easy to do in such light volume. For example, since I follow QQQQ so closely, the 100 day MA for volume on QQQQ was 220M as of November (this reflected high volume selling). After a sideways move, then move up, the 100 day MA stands today at 151M…one third of the volume has disappeared. So we have some short covering (the few that are left) and some program trading…no real money flow. Some of the data on GS increase in VAR and program trading they do compared to their rivals definitely raises eyebrows…and I have long thought that the PPT existed and was powerful. I predicted last July that Obama would be elected and the PPT would let the market tank …seems like that is what may have occurred. Obama got his team in place and they turned the pumpers back on. I believe that it will be futile to stop what is about to occur.

  32. Steve Barry says:

    I watch a lot of out of town baseball…it is stark how empty the stadiums are.

  33. jc says:

    Rtalcott, those OSU phone surveys were from 2007 and we’ve had 5 bad quarters since then, another -20%, probably more.

    Phone surveys are always shakey to begin with and people tend to overestimate the values of their homes, especially in a fast falling market.

    If total homeowner equity in the article is (was) 43% and 1/3 of homes are owned outright then the remaining equity is closer to 10% than 15%, then subtract the brokers commission!

    If Steve Berry is correct about Case-Shiller going another 25-40% south then every TBTF bank is toast – I mean the US taxpayer is toast because turbo Timmy will keep finding really tough & complicated ways to keep giving them our money for our “own good”!

  34. Simon says:

    @ Leftback,

    I’m printing out comments and articles along the lines of what you have written. As time goes by the number of possible scenarios diminishes. I don’t see your scenario 3 ocuring soon. I bought this rally and sold it several weeks ago thinking that something like what Chris Whelan writes about in relation to the mortgage industry would hit the headlines. It hasn’t happened. I don’t think it will very soon either.

    I think SB should cover some of his shorts with options or something because the rally can correct and then grind higher. Just eyeballing the charts shows that there is a huge space between where an orderly bear market would have gone and where this one went. In other words symmetry seems to imply that this short covering rally could go on a lot longer. Also the impetus for the down legs has been coming from the banks and the banks can now hide there losses for a good bit longer.

    I see this rally continuing as the real economy improves and then deteriorates again in a less steep downward direction. After last years massive moves and the recent rally the market could just consolidate in this area gradually working higher in small steps causing more and more pain to the bears.

    I think the thing that could cause the next leg down might be accelerating unemployment figures and social welfare costs. Increasing government cost and decreasing tax receipts will cause the administration to turn on the banks and say no more. A look at seasonal charts to see when this might occur could give a handle on timing for the next leg down.

  35. Simon says:

    Correction Chris Whealen writes about the banks and insurance companies and the whole sale fraud that has occurred.

  36. rtalcott says:

    jc..i agree ..total bs..but i posted it for humor!
    rt

  37. jc says:

    rtalcott, I get your point, almost anyone can find a poll that makes their point .

    If homeowners equity in mortgaged homes averages less than 15% then the low prices received for mortgages bundles at Lehman and other auctions reflect more than just the distress in the sale, they reflect that the banks have 85% skin the game not 55%

  38. [...] — are not relevant to the discussion. As we noted over the weekend, if you look at only the subset of homes with mortgages, the numbers are much [...]