“We’re about to have a big problem. Foreclosures were bad last year? It’s going to get worse.”

-Morris A. Davis, a real estate expert at the University of Wisconsin.


This is a theme I have been hammering on for some time: As more people lose their jobs, we will see increasing foreclosures, adding further stress to banks’ already ugly balance sheets.

As the  New York Times notes, the number of prime mortgages that were “delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home” jumped enormously as job losses accelerated. Over the period when BLS was reporting 500k plus job losses a month, from November’08 to February ’09,  the numbers of distressed properties “increased more than 473,000, exceeding 1.5 million.” Total loan value = more than $224 billion. (Sources: The Times, First American CoreLogic).

Thus, even if the recession ended tomorrow, the US will still have another 500k – one million foreclosures. And if the recession continues for another 6 months to a year, well, you do the math. (Hint: About 2 – 3 X as many)


“In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.

With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy. . .

Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.”

Note that these foreclosures are not the exotic no money down I/O ARMs from the early phase of the housing collapse. Rather, these are “modest borrowers whose loans fit their income.”

A few last data points to consider (as of February 2009):

•  Foreclosure rates among prime borrowers have been growing fastest in states with higher unemployment.

• Economy.com expects mortgage defaults in 2009 caused by unemployment to double, from 29% in 2008 to 60% in 2009;

• Prime mortgages that are distressed (90 days delinquent, foreclosure, REO) are greater than 1.5 million;

• Alt-A loans — those given to people with slightly tainted credit — rose to 836,000.

• Subprime mortgages that were “distressed” reached 1.65 million;

• From February 2008 to Feb 2009, total dollar value of distressed mortgages increased 60% in dollar terms;

• More than four million loans worth $717 billion were “distressed”  in February.

All told, that’s about 4 million problem mortgages out there. My guess is half go into foreclosure. So far, the Obama admin aid to homeowners have seen less than 55,000 mortgages modified.

What this means, for those of you still paying attention, is that we will see lower RE prices, more bank stress, a lot more distressed sales, and no normalization of RE markets for some time.

The best you can hope for is some “stabilization” — if you consider 60% or more of all existing home sales (and many new home sales)  to be distressed sales, foreclosures or bank owned properties — as “stable.”

I got your real estate bottom right here . . .


click for larger graphic




Job Losses Push Safer Mortgages to Foreclosure


NYT May 24, 2009 http://www.nytimes.com/2009/05/25/business/economy/25foreclose.html



Category: Credit, Economy, Employment, Legal, 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.

148 Responses to “More Job Losses = Greater Foreclosures”

  1. I like the 3 wave foreclosure paradigm:

    Wave 1: Speculators gave up property because of plunging real estate prices;

    Wave 2: Borrowers’ introductory interest rates expired and were reset higher

    Wave 3: Unemployment driven foreclosures . . .

    Now, will there be a Wave 4, and what is going to cause it?

  2. call me ahab says:

    wave 4- people able to afford their homes turn them back to the bank because they realize it will be decades of paying their mortgage before the loan balance is lower than the value-

    best to walk away and regroup for a purchase later at a lower price- banks and lending institutions will relax their policies re “deeds in lieu of foreclosure” to let these people purchase again- to move the inventory of bank owned homes-

    not particularly efficient but a good likelihood it may play out this way

  3. Dennis says:

    Even states seemingly removed from the real estate bubble are seeing foreclosures accelerate as the recession grinds on.

    In Minnesota, three of every five people seeking foreclosure counseling now have a prime loan, according to the nonprofit Minnesota Home Ownership Center.

  4. Bruce in Tn says:

    I watched the explanation of the GM dealerships closings this morning. We all know that this is 18% of the dealerships. What was interesting is that they plan to close 40% of existing dealerships by this time next year.

  5. dead hobo says:

    B wondered:

    Now, will there be a Wave 4, and what is going to cause it?

    Real people losing real homes is as bad as it gets. At least bargain hunters are buying old distressed real estate, implying a market will exist for new distressed real estate. All this means is that the real estate bottom won’t be formed the best foreclosures have been uncovered and sold. Logically, this won’t be until mid 2010 at the earliest. And probably not until the Spring 2011 selling season.

    Commercial foreclosures will be wave 3.5. The too big to fail theory has kept many large non performing loans on the books, with the hope something will happen soon. Recognition of losses, bankruptcies, and distressed commercial sales is next and probably before 12/09. Banks will stop waiting.

  6. Patrick Neid says:

    Foreclosurers will be moving upscale.

    If Obama really wanted to help “the people” he should pass/grant a tax holiday on 401K and IRA deductions effective Jan 09. Folks are going to need all the help and every dollar they can get.

  7. larster says:

    Call me ahab- Agree w/ your wave 4 prediction. When I read the articles about $200,000 homes in the Phoenix area going for $80-$100M, my initial thought was, the neighbors that paid $200,000 and are current are screwed. Must make for some interesting block parties.

  8. dead hobo says:

    Bruce in Tn Says:
    May 25th, 2009 at 9:17 am

    I watched the explanation of the GM dealerships closings this morning. We all know that this is 18%

    They still don’t get it. In my newspaper, Malibus and Impalas were discounted about 25% and selling for maybe $17,000, more or less. Escalades were marked down 16% to $61,000. ?????

    I wish the employees well, but resale value on these cars and others from GM and Chrysler drops to $0.00 the day after the government guaranteed warranty expires if GM and/or Chrysler no longer exists.

  9. Bruce in Tn says:

    Emmm, could wave 4 be brought about by increasing property taxes due to insolvent local governments? I realize in and of itself, the cost is not onerous, but with increasing water, power, garbage, gas prices…all these things may make people continue to think downsizing is the way to go..the people who still are current will be charged more by government to live in those homes….revenue must come from somewhere.

  10. km4 says:

    > Now, will there be a Wave 4, and what is going to cause it?

    Wave 4 = China cancels America’s credit card

    Interest rates go up sooner and faster and things really get fugly !

  11. dead hobo says:

    larster Says:
    May 25th, 2009 at 9:26 am

    Call me ahab- Agree w/ your wave 4 prediction. When I read the articles about $200,000 homes in the Phoenix area going for $80-$100M, my initial thought was, the neighbors that paid $200,000 and are current are screwed. Must make for some interesting block parties.

    In about 2 or 3 years, the massive inflation that will occur from all of the stimulus being applied today will bring those homes back to their original value before distressed sales. During inflation, it’s good to own things of value, remember. Real estate is included. While the meaning of ‘value’ will be debated, who cares.

    Wait … Wave 4: Massive injections of stimulus today will create massive inflation in 2011 or 2012. Interest rates will return to Volcker’s era 16% in an effort to lower inflation, which will include $200 oil (I’m not kidding). This crunch will crash real estate, and everything else, again. The severe recession that results from 16% interest rates will create a new severe recession. Stimulus will not be available for this one since it will be the current stimulus that caused those troubles.

    Regulators might pretend to be stupid and ignore $200 oil and the cost-push inflation it causes, claiming the price is a reflection of supply and demand and not inflation. Their logic will be ‘cost push inflation, rather than monetary inflation, is OK and will slow the economy as well as 16% interest rates,’ thus abdicating their legal responsibilities using fantasy economic logic.

  12. Bruce in Tn says:

    And of course in regards to your question, the owners of commercial real estate as they go belly up, could begin a wave 4…and their employees as they are less able to fund their homes..

  13. Bruce in Tn says:


    You know, we’ve all followed that story about China. It appears they are still buying debt but only the short term variety. That is exactly what I’ve done in regards to cd’s the last 18 months or so. And what are they thinking when they do that? They give up a little yield when they cut down the time, but are not trapped with a 10 year that is worth much less in a rising environment. Now why would they do that?

    I think the final answer is that they really ARE planning to leave the dollar as their medium of international business exchange and when things are in place and the short term treasuries expire, then there will be NO more purchases of our debt by China.

    At least that seems the most logical way to look at it, I think..

  14. dead hobo says:

    The end of Wave 4: (perhaps 2015)

    A Republican will be elected President since Democrats will be blamed for the coming double recession. A Republican Congress will also return. They will find an enemy somewhere and declare a patriotic war. This new war will create jobs.

  15. dead hobo says:

    I said

    The end of Wave 4: (perhaps 2015)

    Using proper arithmetic

    The end of Wave 4: (perhaps 2016)

  16. km4 says:

    @ Bruce in Tn

    Yes I know and you bring up a most excellent point i.e. ARE they planning to leave the dollar as their medium of international business exchange …. then there will be NO more purchases of our debt by China.

    And of course they know they’re holding sword of damocles over the Obama and the US economy.

    The bigger question is what is going to be the quid quo pro ?

  17. km4 says:

    > And of course they know they’re holding sword of damocles over the Obama and the US economy.
    Crouching Tiger, Hidden Dragon ;)

  18. Marcus Aurelius says:

    Waves yet to come/finish breaking:

    1. The rest of Alt-A;
    2. Option ARM (which will spawn the major portion of the CC default wave);
    3. Commercial RE;
    4. CC defaults.

    Keep in mind: This is like a rip tide — each wave piles on the one preceding it. All hell breaks loose once the tide turns.

    dead hobo:

    They won’t have to look far to find an enemy — by then we’ll be a pariah. The neighbors don’t like it much when you take a dump in the village well.

  19. mark mchugh says:

    Fun facts about mortgages:

    A 1% increase in rate (5% to 6%) translates to an 11% increase in monthly payment (30 yr.)

    To pay down 20% of the principle takes about 12 years on a 30 yr.

    Now, couple that with the fact that, at least in my area, most sheriff sales get stayed or postponed for months and months ( hoping for miracles I guess). Two things become clear to me: 1) the “distressed sale” inventory is just going to keep rising , and 2) It doesn’t make financial sense for the two million who will be foreclosed on to continue making mortgage payments.

    We should probably keep this to ourselves.

  20. cvienne says:

    Wave 4?

    Things will stay chronically bad for the next 2 1/2 years (but it won’t be enough to actually tip us over the edge)…Somehow we’ll muddle along…

    It’ll be VERY HARD for some, DIFFICULT BUT MANAGEABLE for others…Some will basically fare OK…

    The MSM will be reluctant to blame anything on the “shining hero” that they helped usher into the Oval Office…Thus, it will be a “never ending” propaganda campaign designed to keep people from going out of their minds as long as possible…

    By 2012 there will STILL appear to be no end in sight…

    “Hope & Change” will have been long forgotten (in fact, it has already been replaced by “green shoots”)

    “Green Shoots” may have sounded nice (and many consider “green shoots” to mean “Hope”)…

    The problem is…A green shoot is a THING (which can wither and die, or get dug up)…Whereas “HOPE” is intangible, it’s harder to destroy…People will have HOPE in the darkest of moments, whereas when a green shoot dies, they “lose” HOPE…

    By 2012, we’ll be on roughly the 3rd generation of “green shoots”…Many won’t believe in them anymore (or the people who are promising them)…

    At that point, they will turn to other things…(Many will turn to “themselves” – realizing that it is every man & woman for themself)…Others will band together and form their own small groups…

    Then there will be something on the horizon…The IDEAS about the prophecies of December 21, 2012…

    It’s NOT going to be like the ‘milennium bug’…People basically felt ‘prosperous’ during 1999, so the idea that there was going to be chaos on Dec 31, 1999 was shrugged off more as a reason to throw a big party…This is going to be DIFFERENT…

    People, as 2012 approaches, and the global economy stays bad, are going to feel more and more insecure…They will do what EVERY species does when they’re afraid…THEY’LL HOARDE…The system will not be able to handle HOARDING on a massive scale like that (think those TV images you see in towns that a hurricane is bearing down on)…Store shelves are empty, if they’re closed, there will be looting…It’ll start slow, but then it will grow in size and scale…At some point, people may even decide to say “screw it”, and not even work anymore (or not pay their bills)…

    I’m going to predict that there is a fairly high probability between July 2012 and December 2012 that the gears of economics (and economic activity), grind to a dangerously SLOW pace…

    Maybe I’m totally wrong here…Trust me, I DON’T WANT TO BE RIGHT!

    Am I crazy though to consider something like that as an outlier? Is it too far fetched?

  21. The Curmudgeon says:

    The essence of the problem in housing is the imbalance of supply vs demand. People have to live somewhere, but the over-building during the boom to feed the speculators (credit the Fed for that) that no longer are speculatin’ means that housing prices should decline to a market-clearing point where supply just meets demand for houses as homes, and not as speculuative investments.

    The board is correct in its observation that the end-game here is war, if for no other reason than the only hope of saving the dollar will be to force our trading partners to accept dollars for oil at the point of a nuclear-tipped warhead.

    @BnT, just had a bunch of short-term CD’s mature. Since I’m aiming to stay mostly cash (with a little gold and oil in there as hedge against Armageddon), what’s the best short-term rate you’ve seen?

  22. Marie Antoinette says:

    “The bigger question is what is going to be the quid quo pro ?”

    Greater East Asian Co-Prosperity Sphere? Taiwan?

    Look on the bright side: maybe they’ll reign in N. Korea for free.

  23. Marie Antoinette says:

    Dead Hobo,
    I don’t think the Republicans will need to manufacture an enemy, nor will it take 4-6 years to get to war.

    Check the news: Starbucks on Upper East Side bombed (an IRA type warning in the middle of the night–blood comes later, first spread fear)

    North Korea successfully explodes something nuclear

    Pakistan unravelling at rapid clip.

    Global instability and deep economic crisis are old friends. We are already on the brink.

  24. Bruce in Tn says:


    I do all my investing with Schwab. I have been buying callable 36 month cd’s at 3.5%…but I have been holding off lately with the increase in rates. Of course, with Schwab, they will give you a little less than the best going rate since they must get their vig off the top, but right now I just don’t want to lose money, and have been satisfied with this plan.

    The traders on the site have my respect..in this environment with this massive government distortion and on the other hand the massive deleveraging, it just seems wise for someone like me to patiently wait.

    I expect rates to be considerably higher in two weeks, with the latest increase in rates…

  25. Steve Barry says:

    Stands to reason…if you have no savings and lose your job, you can’t pay your mortgage.

    Also, one are that propped up prices was summer and vacation homes…how ar ethings in the Hamptons?


    The number of unsold homes in the Hamptons rose 15 percent to a record 1,673 in the first quarter from a year earlier, according to data compiled by New York-based appraiser Miller Samuel Inc. Sales have declined the most in the 27 years that broker Town & Country Real Estate has kept records for the Long Island beach towns about 100 miles east of Manhattan.

    The inventory of Hamptons’ homes would take 34 months to sell at the current pace, Miller Samuel reported, or more than three times the 9.8 months’ supply of existing homes in the U.S. as tracked by the National Association of Realtors.

  26. Marie Antoinette says:

    As for foreclosures, Call me Ahab wins the cigar, IMO.

    I live in an upscale community. Bought in 2004. Ooops. Today: formerly highly paid spouse is down to 40% of last year’s pay (lucky to have job!). This is equal to mortgage + recently DOUBLED property tax. Unsustainable? Y’think?

    Of course, our hefty 25% down payment is gone because we are 30% down from purchase price.

    I am open with the neighbors, who are clearly incredulous. It is starting to sink in. Will take another year or so to be fully understood (about the same amount of time as it will take to foreclose on us).

    Am I projecting, or will 2010 be the crunch year?

  27. km4 says:

    Marie Antoinette I think the quid quo pro will be a global currency because there is already tangible movement afoot ( China, Russia, Brazil, Japan ? , others ) and rest of world is sick and tired of perpetuating careless U.S. monetary and fiscal policies that makes America’s standard of living superficially inflated !

    Most Americans had better start making the gradual adjustment that the party since Reagan in the 1980′s where deficits did not matter is over and there will be a leveling of the global playing field.

  28. cvienne says:

    @Marie Antoinette


    And wait until the Russians make a move back to reclaim dominance in Eastern Europe…

    Big O can’t even figure out what to do with GITMO detainees…

    - Ahmadinejad will use every “stall” tactic he can to get his enrichment program online
    - Jong Il is detonating nukes to see what the “policy” response will be (NOTHING)
    - Putin sees this weakness and is waiting to make his own move

    All the ROW sees now is a weakened ‘flip-flopping’ America…We can even free ship captains from pirate attacks without debate and consternation…

  29. The Curmudgeon says:

    @BnT…waiting to shoot until you can see the whites of their eyes…a sound strategy for investing or fighting. Thanks for info….I hadn’t noticed that rates had gotten so high. Can’t see the trees for the forest sometimes, I suppose.

    And though I too respect the traders here, I’m not one. I’m just trying to keep the principal more or less intact…keeping my powder dry, for the end-game.

  30. km4 says:

    Speaker Pelosi dodges human rights on China visit

    SHANGHAI – U.S. House Speaker Nancy Pelosi, long a fierce critic of Beijing, toured China’s financial capital on Monday on a visit focused on environmental issues rather than human rights

    During a 1991 visit to Beijing, the Democrat from California unfurled a banner that read “To those who died for democracy in China” in the square. Years later, she attempted to present human rights petitions to then-visiting President Hu Jintao. When Tibetans staged protests against Chinese rule last year, Pelosi visited their exiled spiritual leader, the Dalai Lama.

    Hmmm in 1991 the USA was the BIG DOG just ramping into careless U.S. monetary and fiscal policies and a standard of living that was the envy of the world.

    How times have changed….

  31. Onlooker from Troy says:

    I’m with ahab: http://www.ritholtz.com/blog/2009/05/job-losses-foreclosures/#comment-175657

    Those who can keep up with their debt obligations (morts, CCs, etc.), but just barely, and see themselves slipping further and further underwater, will start to see defaulting as the rational choice. Heck it’s already happening, but will move upscale as this progresses.

    When so many others are doing it (defaulting) the stigma is lessened and you can start to feel like the sucker if you’re hanging on while others wipe the slate clean and move on. If you don’t then in 5 years or so you’ll still be trying to climb out of the hole while those who defaulted start to build equity and savings. This psychology will take hold among many, many more people, even those who never would have thought of doing so in a normal world.

  32. jnutley says:

    If you want to talk Global (In)Stability, get your head out of Wall Street. Start with Barnett:



    – — – — –

    The nations of the world are _not_ gearing up for war. The groups that fund warriors by proxy (Bin Laden et al) are also feeling the global loss of demand and cutting back their support to those operations. More desperate villagers will turn to piracy or the equivalent, but real war, and real terrorism will hunker down until the economy starts to turn up.

    The second coming of WWII will _NOT_ save our (or anyone’s) economy.

  33. Bruce in Tn says:


    Obama: N. Korea ‘recklessly challenging’ the world

    “In his statement before cameras and microphones arrayed in the White House Rose Garden at mid-morning, he noted that the latest tests had also been denounced by China and Russia and had drawn the scorn of many around the world. Pyongyang’s actions “have flown in the face of U.N. resolutions” and had deepened its isolation, he said, “inviting stronger international pressure.”

    I think I agree with jnutley above…this statement by the president is pretty shallow, I think. If there is any one nation that isn’t worried about isolation or international pressure, it is North Korea…duh.

    And he could have said,”Since we owe our firstborn children to China already, and since North Korea is in their backyard, and since China proved in the Korean War that they are not ready to let the West have too great a hand in their sphere of influence, I think I’ll just shut up and wait until I see how the Chinese are reacting to this before I have anything of importance to say on this incident.”

  34. usphoenix says:

    I agree that each of the “Waves” is spread over a longer period, especially with so many holding off on foreclosure right now. If that changes and all that real estate hits the market at once things could change quickly. If we take a simplistic homeowner view that:

    Budget = income – expenses.

    The first wave was caused not by budget but by speculative flipping. The second by interest expense increases swamping income, and then the third by job loss: income disappearing. All of these will continue as we continue to wind down.

    A fourth wave? I like the earlier idea of tax increases driving people from their homes. This has been happening for decades with seniors living on fixed incomes. Fortunately many were rescued by rising prices and could sell to more affordable housing, and it was and not really an issue.

    Now it is an issue. And the idea of a fourth wave caused by people walking away, particularly seniors makes some sense. Taxes and maintenance expenses on housing continue to escalate while values drop.

    There is a growing tension between government, particularly state and local, and the locals caused by the drastic drop in gov receipts, and their need to continue their employment and spending levels. It’s a cinch real estate taxes are not going down. Government has been at the trough gorging on the good times, and the cold shower is not going to end well. Many were already teetering on BK.

    Perhaps a last component is the death of the concept of single family suburban homes. Community living, taking on boarders, family generations returning to a single dwelling.

  35. cvienne says:


    Great then…problem solved!

    So if “economic turmoil” is the new prescription for world peace, why are we bothering to bail out financial instutions (and everyone else for that matter)?

    Be careful, if things start to get prosperous again, the world will go to war over resources, right?

  36. DL says:

    One question is, will the rising foreclosures, combined with CRE defaults, be enough to send the SPX back to the 700 level? Or is it all just “better than expected”.

  37. cvienne says:


    Your last paragraph, in all likelihood, was very correct…

    People will basically “move back in together”…That is basically how Europe has survived with high single digit or double digit inflation for years…

    Generations of families sharing the same dwelling, etc.

    It’s simple, and quite frankly PAINLESS…The only “catch” all along in this country is that there existed a sort of “cultural bias” AGAINST the idea…In Europe, there is no bias, or stigma whatsoever…

    It’s considered NORMAL…

  38. cvienne says:


    You don’t need THAT to send the SPX back to 700…

    All you need is one or two more “earnings seasons” to get pasted in the scrapbook…

    This market only got called up on the hope that “operating earnings” would meet a rebound in demand at some fixed point in the future…

    MM’s are still forecasting for $55-$60 earnings in 2010…

    When the #’s come in in the $30-40 range they’ll have to start adjusting downward…(unless some GREEN TREES start forming from the GREEN SHOOTS

  39. Latesummer2009 says:

    Throw in already bloated inventories and this summer is the last chance to sell, before a big price chunk gets lopped off the high end. Market inventories are as high as 41 months in Century City on the Westside of Los Angeles. With Prime, Alt-A and ARMs getting ready to blow, real estate is in for a world of hurt.


  40. [...] light of Friday’s BankUnited Failure, and our earlier post on rising foreclosures, here is an updated version of a chart I ran previously from Ron Griess of The Chart Store, showing [...]

  41. constantnormal says:

    What does the flattening out of the curve of subprime mortgages in trouble indicate?

    Have they ALL gone into default?

  42. to keep things simple:

    for you that missed/overlooked Oliver Stone’s other message in “Wall Street”:
    All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. Hold out baits to entice the enemy. Feign disorder, and crush him.
    - Sun Tzu, the Art of War

    He who wishes to fight must first count the cost. When you engage in actual fighting, if victory is long in coming, then men’s weapons will grow dull and their ardor will be dampened. If you lay siege to a town, you will exhaust your strength. Again, if the campaign is protracted, the resources of the State will not be equal to the strain. Now, when your weapons are dulled, your ardor dampened, your strength exhausted and your treasure spent, other chieftains will spring up to take advantage of your extremity. Then no man, however wise, will be able to avert the consequences that must ensue… In war, then, let your great object be victory, not lengthy campaigns.
    -Sun Tzu, the Art of War

  43. The Curmudgeon says:

    Have they ALL gone into default?

    essentially, yes. they were only about fifth of the market at their peak anyway, less than that if you strip out alt-A.

  44. [...] Schuldnern sollen mit ihren Hypozahlungen in Verzug sein (siehe Chart). Weitere Infos bei Big Picture.   (Trackback)Tag it: Artikel kommentieren | Zu Favoriten hinzufügen (0) | [...]

  45. lw says:

    I believe it will take the following to stop the landslide:

    Someone has to create 15 Million US based jobs over the next 3-6 months in the private sector that only require an 8th grade education, pay $50-60K per year and have full benefits and can’t be outsourced.

    I worry that I’m too optimistic..

  46. The Curmudgeon says:

    “In war, then, let your great object be victory, not lengthy campaigns.”

    Good thing we adhered to that premise in Iraq and Afghanistan…where it seems the whole point of the exercise was a long, tortuous grind leading to nowhere. Had victory been our object, Iraq would now be our 51st state, or at minimum, a colony. It was never about victory. It was always about W’s existential doubt: “Do I exist as commander-in-chief if I am not commanding troops in battle? What if they aren’t dying in sufficient numbers? Will I finally prove myself a man if I go to Iraq and do what my daddy (wisely) refused?”

    And we would have declared victory over the impassable, indefensible and mostly uninhabitable eastern provinces of Afghanistan and left, except for the drones, which are far cheaper and easier and more effective than either manned aircraft or boots on the ground at inflicting damage and thereby imposing our will, so far as a thing in such a place is possible.

  47. CTB says:

    So much gleaming positivity here. Maybe there’s an upcoming bubble in happy pills…

  48. cvienne says:


    They just slapped a 99% tax on “happy pills”

  49. [...] not just the poor, but everyone will be without a home and without a job. The financial crisis will finally allow us to complete the cycle already set into gear by the same [...]

  50. The Curmudgeon says:

    The following is an excerpt of an essay found here: http://www.aynrand.org/site/News2?page=NewsArticle&id=23387&news_iv_ctrl=1021

    What We Owe Our Soldiers

    By Alex Epstein

    Every Memorial Day, we pay tribute to the American men and women who have died in combat. With speeches and solemn ceremonies, we recognize their courage and valor. But one fact goes unacknowledged in our Memorial Day tributes: all too many of our soldiers have died unnecessarily–because they were sent to fight for a purpose other than America’s freedom.

    The proper purpose of a government is to protect its citizens’ lives and freedom against the initiation of force by criminals at home and aggressors abroad. The American government has a sacred responsibility to recognize the individual value of every one of its citizens’ lives, and thus to do everything possible to protect the rights of each to life, liberty, property, and the pursuit of happiness. This absolutely includes our soldiers.

    Soldiers are not sacrificial objects; they are full-fledged Americans with the same moral right as the rest of us to the pursuit of their own goals, their own dreams, their own happiness. Rational soldiers enjoy much of the work of military service, take pride in their ability to do it superlatively, and gain profound satisfaction in protecting the freedom of every American, including their own freedom.

  51. thetanman says:

    It is downright funeral here. Look on the bright side, I am sure there is one. The ECRI, who are usually right, has forecast that we are on the cusp of a growth cycle. If you want to find positive things you can. Otherwise I’ll soon have to start freebasing prozac.

  52. [...] That subprime problem isn’t a subprime problem anymore Jump to Comments CNBC and Rick Santelli’s list of losers grows. How many poor people can be in prime? [...]

  53. km4 says:

    Bush did it with the Iraq war…

    War is a racket. It always has been. It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives. A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small ‘inside’ group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes.”
    - U.S. Marine Major General Smedley Darlington Butler, one of only 19 people to be twice awarded the Medal of Honor,

    Obama is doing it with the 19 too big too fail banks

    The US financial ponzi scheme is a racket…..Obama and his Wall St bought and paid for economic team have put all their chips on the Banking Oligarchs. It is conducted for the benefit of the very few ( The 19 too big to fail banks ) at the expense of the very many ( the American taxpayers). Obama’s objective with his Wall St bought and paid for economic team is to pump up great chunks of the Big Shitpile that’s essentially worthless unless the peak real estate values of the bubble can be miraculously restored.

    This will fail because America and Americans are swimming in debt

    Most Americans had better start making the gradual adjustment that the party since Reagan in the 1980’s where deficits did not matter is over and there will be a leveling of the global playing field.

    And I suggest that most should be recalibrating their American dream ;)

  54. jeg3 says:

    Wave IV = Continuation of I to III (unemployment & interest rate resetting into ~ 2013-14?), plus CRE and also the “wealthy” snapping up bargains in AZ and elsewhere that turns into an expense and not an investment.

    Real Estate is an expense for most and not an investment (speculative) as American history has proven with plenty of bust, except for the financial industry who loan money and have interest income. Oops, I forgot, a few of them F’d up, so I guess only the local Gov’t has income from property taxes, and the smarter banksters and CRE investors still getting interest/rent for the next ~decade.

    As the saying goes, stop paying the property tax and see who really owns the rights to the “investment” property,
    and stop the upkeep to further devalue the property.

    Eventually property values will meet the downward moving target of personal income which may have a correlation with unemployment levels and lopsided income distribution. But don’t tell that to a neoclassic economist who believes reality has to fit theory, and if not then reality is the farce.

  55. Paul Jones says:

    So you’re saying everything isn’t perfect?

  56. Bruce in Tn says:


    I’ll give you a happy little website, and you can put it on your favorites:


    You’re welcome..

  57. With tax revenues dropping, I’ve got to think that layoffs at least at the state and local level will lead to wave 4 though it will probably be muted. The feds can print, the rest can’t. Just look at the turmoil Arnold is going through

  58. Cursive says:

    “As more people lose their jobs, we will see increasing foreclosures, adding further stress to banks’ already ugly balance sheets.”


    - Tim Geithner

  59. Cursive says:

    I’m not sure the exact timing, but FAZ will rise from the ashes sometime this year.

  60. cvienne says:


    Yeah…I’ll betcha it does a “double”!

    It’ll go from $1 to $2…

  61. Cursive says:

    Well, it closed Friday at about $5.50. I think it can easily double from here in the next month. However, I also believe this thing will see at least $50 again this year. You do the math….(disclaimer: this is not stock trading advice and nobody should ever trade this devil child of an investment).

  62. cvienne says:


    I’m sure someone will make some money with it (and someone else will lose)…

    Just like a prognostication I read on Bloomberg News today…Some analyst was suggesting a 50% percent chance that OPEC would do a production cut…

    Really? Wow, that’s handy advice!

    Here…I’ll give you a 50-50 chance that when I flip this coin It’ll wind up “heads”…Now pay me my 2% for my sound advice :-)

  63. Onlooker from Troy says:

    thetanman http://www.ritholtz.com/blog/2009/05/job-losses-foreclosures/comment-page-1/#comment-175720

    I’m betting that their model does a great job of forecasting recoveries from cyclical, inventory driven recessions of the sort that we’ve seen post WWII. But not so much this one. We’ve been over and over the differences we’re dealing with here: debt bubble bursting causing immense deflation effects, economy broken structurally, job market broken, etc.

    They may see a “recovery” as defined by a GDP bump, but it won’t really be meaningful to the markets or anything else in the longer run. What did it mean in the last downturn?

    And I also am wary of them fundamentally based on the fact that they still think that we could have avoided a recession with the application of more stimulus last spring.

    From their website http://www.businesscycle.com/ :

    “In January 2008, we recognized that “a self-reinforcing downturn has already begun. If allowed to continue, it will amount to the vicious cycle known as a business cycle recession.” At the time, we explained why “prompt stimulus to boost consumer spending can avert a recession. But time is truly of the essence – the stimulus is needed in a matter of weeks, not months.”

    When our warning went unheeded, we declared in March 2008 that we had entered a “recession of choice.”

    Their Keynesian bent leaves me feeling queasy. This thing was coming down, no matter what. More stimulus would have just propped it up a little longer (maybe) and made the drop more dramatic, if anything.

    Recession of choice indeed. Reminds me of those who still are braying that this is all just a lack of consumer confidence brought on by the negativity in the media. What a load of crap.

  64. cvienne says:


    How could it possibly go to $50?

    If all the financial stocks went to ZERO overnight that would be a 100% move (x3 = 300%)

    300% of $5.50 is a $16.50 move…

  65. US PHX,

    I think you’re on the right track. Now, if one adds in “Always Low Prices” and their Cost to the social fabric/manufacturing sector of the United States, one might see that “Free Trade” was a chimera to obsfuscate the Growing Costs of the ever growing #’s of Rules & Regs + Deficits, promulgated, by Policy, from WDC.

    this: “there will be a leveling of the global playing field.”–km4, above, has been the, openly espoused, Plan. see: http://www.trilateral.org/about.htm and their favored cohorts: http://www.cfr.org/
    These two Groups have been Responsible, look at their Rosters, for the majority of Actions of every Administration, at least, since ’77.
    The CFR’s, publicly acknowledged, History stretches back much further, and their Members have riddled the Federal Gov’t/FedRes, at the minimum, for a Long Time.

    As background to the Simple Story: The American People have been Set-up to be Set-up, to be Taken Down.
    I’m, only, too, Sorry that that Story doesn’t qualify as being: “All the News that’s Fit to Print”.
    The only thing Incompetent, about what has transpired, are those that believe We got here due to “Incompetence”.
    and, for you that missed/overlooked Oliver Stone’s other message in “Wall Street”:
    All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. Hold out baits to entice the enemy. Feign disorder, and crush him.
    - Sun Tzu, the Art of War

    just know that, going forward, 10% will be OK, no matter what happens, 30% are, already, Lost, how the remaining 60% Act/Re-Act will prove the Tale to be Told about the here and Now.

    and, note: this Is abbreviated..have fun, or ask Q:s, as always, you’re free to choose..

  66. cvienne says:


    More stimulus in 2008 would have likely ended up in the hands of Bear, Lehman, & Merrill Lynch…

    They all went bust (or were otherwise taken over)…

    Same for this years “bailouts”…All the companies are going to end up bust anyway…Half of these banks that take TARP are going to go bust, Chrysler will go bust, AGAIN, GM will go bust (after they go bust this time)…

    It’s all just pouring $$ down the drain…

  67. ben22 says:

    Wave 4:

    Hope someone didn’t already say this, I didn’t read all the comments:

    Wave 4 can begin very soon and it will be the AltA and Option ARMS that cause it. Those recasts have hardly started. According to the schedule I have the massive resets with these begin next year and continue all the way until the end of 2011. My understanding is that on many of these loans they will recast before the original recast date when the mortgage balance reaches 110-120% of the original loan balance. Due to all the goofy payment schemes of negative am and the like, I have to imagine there is a very large amount of people that might be making interest only payments but right on the edge of the loan reset as a result of depreciation. As unemployment driven foreclosures continue this will not happen by choice, it’s just the way the contracts are written.

    I’m thinking at this point that most speculators have exited this market however so as Barry’s #2 and 3 continue apace when Wave 4 hits it will feed on itself. We should also remember that based on the things in place for the banks, they don’t have incentive to lend, they can make money without hardly lifting a finger.

    This is also just another fine example of the credit deflation we are currently living through. It’s only the start though. I won’t even mention the tax aspect of all of this. I have to question, for example, how long people in some of the Philly suburbs such as West Chester, Malvern, or Wayne continue to watch home prices drop while paying 20k plus per year in property taxes, especially when they do not have children attending any public school.

    Wave 5 should occur when the idea of QE completely blows up in the Fed’s face. This pushes up rates and chokes off any possible recovery in housing.

    Everything moves in 3′s or 5′s so I had to give a 5th.

  68. ben22 says:

    It’s also worth noting the following with regards to RE:

    MEW 2006 Q2: >$200 billion

    MEW 2008 Q2: ~$9.5 billion

    Lets also not forget the mental toll it takes on folks when they lose money on a home, especially at a time when the stock portfolio probably just took a bath to the tune of – 40%. This changes spending habits, etc.

  69. Cursive says:

    @cvienne 2:50

    It compounds daily, so it’s not a linear calculation.

  70. Mike in Nola says:

    As Tanta said some time ago: “We are all subprime now.”

    IMHO, Dead Hobo seems to be firing on all cylinders.

    I think the Chinese are constrained by the fact they have no place else to go with their surpluses


    While the US is crap, everyone else is worse.

    Some wars are profitable. NAM wasn’t and neither was W’s. While I hated what he did in 2000 (I think he regretted it, too), I always admired James Baker’s competence; we made a small profit on Desert Storm.

    Last night I ran across this speech, which sounded reasonable, though rambling.


    Links to some q&a audio with him here. Somewhat interesting. He generally feels as most here do, but, based on the histories of past depressions, he doesn’t really expect inflation to take hold for a long time. He expects a bump up in treasury rates for about a year and then for them to settle down. Not sure if I agree on that as, historically, the Fed never printed this much money.


  71. cvienne says:


    I understand that aspect…It would have to be a pretty large directional move (with a lot of volatility), extending for a pretty long timeframe for it to work its way back to $50 I’d imagine…

    I’m too lazy to run scenarios on it

  72. ben22 says:


    you seem to be intelligent judging by your posts the last few weeks. You also seem to know money managers based on your mention of discussing things with hedge fund managers so I have to ask:

    Is the goal of an investor to “find something positive”

    Looking for positives last year would have made you positively broke.

    There are always positives if someone looks hard enough. One of the greatest positives emerging IMHO is the personal savings rate increase. It was long overdue and though it will cause problems short term, it was needed.

    As an investor, or a money manager, I think it is far more prudent to understand the bad news even though it’s more fun to find good news. Maybe you can set me straight on this.

    Also, any forecast of global growth isn’t using a model that accounts for credit deflation so I’m skeptical of anything like that. I’ve never seen any model that factors in credit deflation like we could see.

    Last, is any of this really bad news?? Isn’t it just…. reality?

  73. Cursive says:


    Too lazy, also. But, if we did do such an analysis, look at RIFIN. That’s the underlying index. I watched SKF go from $300+ to $87 and back to $300+ the past 6 months. This is not a stock market, it is a casino and anyone with money in the game is at the roulette wheel. The wiser among us have withdrawn from the table. For anyone else crazy enough to still be in the casino, place your bets on red or black…

  74. cvienne says:


    The EARTH SUCKS Ben!

    And it’s a good thing too…If it didn’t, we’d all go flying off into outer space…..

  75. Cursive says:

    Aargh! Lost my last post. It’ll probably re-appear later….I may not.

    I wasn’t able to raise my flag this morning becuase of the rain, but wanted to echo what so many on hear have said about our fine men and women, past and present, who have served this country. I and my family greatly appreciate your service. Thank you. Happy Memorial Day!

  76. Wes Schott says:

    where the heck is Franklin when you need him?

  77. Mike in Nola says:

    Looks like the Russky’s won’t be worth fighting. Maybe they’ll start a war to distract their citizens.

  78. cvienne says:


    If you want, I’ll play the role of Franklin for the rest of the afternoon and talk about “green shoots” and you all can but the BEAT DOWN on me…


    May 25 (Bloomberg) — Canada’s Finance Minister Jim Flaherty said the country’s federal deficit will be “substantially” greater than originally forecast in January.

    Flaherty spoke to reporters in Chelsea, Quebec.

    greater means better, right? Therefore: “Better than expected” :-)

  79. Wes Schott says:

    @cv -

    I asked the other night why everyone got so riled by F411. BnTn said it was because he was the father of Rosemary’s baby. If I remember who the father was correctly, it was the devil. Sign of devil – 666.

    Next, I go buy a liter of Johny Black and it rings up as 66.36 – hmmm (inflation).

    I spent the next couple of days studying Elliott Wave and reading about some numbers guy named Fibonaci and came up with some new insights into where the market goes from here.

    OK, follow me now (I can’t), 666 was the SP500 low. 6 6 3 6 is 50% fib retracement and recovery between the 2 and 4th data point. Oh shoot I don’t remember is the 5th wave up or down – hep me Ben22 , for the depressive bunch I’m callin’ 333 and for the optimistic bunch 999.

    PE = 10% at bear bottom. $33 Sp earnings = 333 majic

  80. thetanman says:


    Thanks for your reply. The ECRI claims that there was an indicator that failed to turn upward during the GD, but is now climbing. It does seem implausible that they have the Rosetta stone of economic indicators, infallible for all these decades. We have such a huge bubble, and just be able to Houdini our way out of it, does seem even more far fetched. Please excuse my attempt at a ray of sunshine.

    Have you read or listened to Bob Hoye? That H-S on the $TRAN does look ominous.

  81. thetanman says:


    Thanks. I did know a MM years ago-I’ll tell you his naked put odyssey one day, and a hedge fund manager. The MM lost $850k in one day and survived, although he was a little perturbed. The hedge fund manager was great at trading his own account but returned about 15% after expenses from ’03-’06. So not bozos, but not Soroses either. And yes, if there one thing I know, hope is the worst investment strategy known. Just throwing some things out there. Look at it this way, if anyone on here reads something by the ECRI, they’ll know a lot more about them than they otherwise would. I’ll go sit in the corner now.

  82. ben22 says:


    ok., I was curious, reading as if you had entered the Green Shoots zone, which I was a little confused about based on recent remarks on $TRAN. In any event, nobody puts tanman in the corner, or Karen for that matter.


    I’m last person to ask when it comes to wave analysis, just a novice here and I’d probably tell you something wrong. Though I have probably put a good 75 hours into in the last two months, it’s not nearly enough. Until I can see the stuff without having to go back to the book constantly I’m just a novice.

    AT would be a much better person to ask than me. He’s made some unreal calls the last 12 months, several times I’ve seen him calls short term tops or bottoms almost to the decimal. Also, I’d sign up for his e-mail if you really want to get into it.

    If you are really interested in it I’d suggest you also purchase Frost & Prechter, Elliot Wave Principle. It’s the bible of wave and it is very easy to read. The key with wave is getting the “count” correct, for example, prechter’s call back in Feb to cover shorts (see the video’s section for all his calls since 10/07) was based on a wave 2 rally but as part of a Primary wave count, and as you go further you’ll see there are several counts that are always at work:

    1. Supermillennium
    2. Millenium
    3. Submillenium
    4. Grand Supercycle
    5. Supercycle
    6. Cycle
    7. Primary
    8. Intermediate
    9. Minor
    10. Minute
    11. Minuette
    12. Subminuette
    13. Micro
    14. Submicro
    15. Miniscule

    From page 28 of the book:

    It is important to understand that these names and labels refer to specifically identifiable degress of waves. By using a nomenclature, an analyst can identify precisely the position of a wave in the overall progression of the stock market, much as longitude and latitude are used to identify a geographical location.

    Now Prechter, as far as I know, remains very bearish which can be seen in the videos, however, I think there are 9 different wave counts going right now, all of which lead to different outcomes of course. As Barry wisely notes in the video section, he was wrong the whole bull mkt of the 90′s. As with anything, there is no perfect answer to where the market goes next. I have a bearish stance but I never fall in love with any one investment thesis and that’s why I was long early this year. When I’m wrong that’s what stops are for. Risk management is something I think I can do much better than 99% of fund managers out there. Make money, and keep money, that’s my only goal.

    My interest in wave started with my obsession with phi. I have read many books on phi and spent a few years now learning about it so I think it has helped a lot with me catching on to wave.

    I’m sure AT will tell you, it will take a real effort to get any good at wave counting.

  83. Bruce in Tn says:


    Sorry if I was catty. People who know me say I can disembowel people I don’t like with my tongue. Sorry. Doesn’t happen often. I come here to learn and am thankful there are bright professionals willing to share.

  84. Bruce in Tn says:


    China ready to discuss new reserve currency at G20 summit

    BEIJING, March 23 (RIA Novosti) – China is ready to discuss Russia’s proposal of a new global reserve currency as an alternative to the U.S. dollar at the G20 summit in London, a vice governor of the country’s Central Bank said on Monday.

    ..I did read something this weekend that said that China was trapped having to buy treasuries (once again)….well, again, for us folks who probably were conceived in Missouri….maybe I am not fully convinced of that….20 years ago it was unthinkable that GM would go BK….

  85. ben22 says:


    In order to spark some debate, is the idea of a one world currency not a biblical prophecy?

  86. Wes Schott says:

    …after the Amero

  87. cvienne says:


    It can’t be very tasty to disembowel people with your tongue :-p

  88. Wes Schott says:

    @cv – ooooh dude

  89. km4 says:

    Bruce in Tn Says: May 25th, 2009 at 7:12 pm
    China ready to discuss new reserve currency at G20 summit

    Gee who called it…what do I win ;)

    km4 Says: May 25th, 2009 at 10:44 am

    Marie Antoinette I think the quid quo pro will be a global currency because there is already tangible movement afoot ( China, Russia, Brazil, Japan ? , others ) and rest of world is sick and tired of perpetuating careless U.S. monetary and fiscal policies that makes America’s standard of living superficially inflated !

    Most Americans had better start making the gradual adjustment that the party since Reagan in the 1980’s where deficits did not matter is over and there will be a leveling of the global playing field.

  90. ben22 says:


    I just realized you asked a question about Wave 5.

    Wave 5 can be up or down, it’s the 2 and 4 waves that are counter to the trend.

    Other simple rules:

    Wave 3 is never the shortest wave
    Wave 2 never moves beyond the start of Wave 1
    Wave 4 never enters the price territory of Wave 1

  91. Wes Schott says:

    @km4 –

    …average down, better than getting nut’n honey

  92. Wes Schott says:

    @ben22 –

    thanks man, sounds like you are ready to take off the training wheels

  93. cvienne says:


    As we all ponder the “post deficit” era, let us consider our blessings…

    Carl Spackler, CADDYSHACK

    “So I jump ship in Hong Kong and make my way over to Tibet, and I get on as a looper at a course over in the Himalayas. A looper, you know, a caddy, a looper, a jock. So, I tell them I’m a pro jock, and who do you think they give me? The Dalai Lama, himself. Twelfth son of the Lama. The flowing robes, the grace, bald. striking. So, I’m on the first tee with him. I give him the driver. He hauls off and whacks one – big hitter, the Lama – long, into a ten-thousand foot crevice, right at the base of this glacier. And do you know what the Lama says? Gunga galunga gunga – gunga galunga. So we finish the eighteenth and he’s gonna stiff me. And I say, “Hey, Lama, hey, how about a little something, you know, for the effort, you know.” And he says, “Oh, uh, there won’t be any money, but when you die, on your deathbed, you will receive total consiousness.”

    So I got that goin’ for me, which is nice…

  94. Wes Schott says:



    remember what “gunga”/ganga”/”ganja” was the other day at Barrys’ place – green shoots..

    …on your death bed you will receive total consciousness……as you spend your very last cent….priceless

  95. km4 says:

    @ Wes Schott – I’m mostly out our rigged stock market and into low interest safe yields. I take my much better ‘calculated risks’ consulting for select software startups where I get stock options + retainer fee !

    @ cvienne – most excellent vignette !

  96. Wes Schott says:


    sorry, I refering to a prior post re. a world currency – not investmenr advise

    he, he deflation first. inflation second

    watch out for a change in phase

  97. Wes Schott says:

    @km4 -

    …congrats on the stock options + fees

  98. cvienne says:


    The “best” vignette was from yesterday…but these things get lost over a holiday weekend…

    Here’s a REPRISE…

    BEING THERE, 1979

    President “Bobby”: Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?

    [Long pause]

    Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.

    President “Bobby”: In the garden.

    Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.

    President “Bobby”: Spring and summer.

    Chance the Gardener: Yes.

    President “Bobby”: Then fall and winter.

    Chance the Gardener: Yes.

    Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we’re upset by the seasons of our economy.

    Chance the Gardener: Yes! There will be growth in the spring!

    Benjamin Rand: Hmm!

    Chance the Gardener: Hmm!

    President “Bobby”: Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I’ve heard in a very, very long time.

    [Benjamin Rand applauds]

    President “Bobby”: I admire your good, solid sense. That’s precisely what we lack on Capitol Hill.


  99. Wes Schott says:

    Wes Schott @ 7:50

    re. km4@7:48

    that was your comment re. world currencies and with a happy face.

    you are the winner – i just don’t think anybody is handing out any booty on this blogsite

    i’m talkin’ to myself?