It is beginning to look a lot like Oz…
“Close your eyes and tap your heels together three times. And think to yourself, there’s no place like home.”
The Good Witch, The Wizard of Oz
You better hurry Dorothy; that home of yours may not be there when you get back…
Housing Down Again: C Wave? From The Economist: “THERE was further gloomy news for America’s homeowners as national house prices dipped in the three months to September. The S&P/Case-Shiller index, released on November 30th, fell by 1.5% from the same period in 2009 and by 2% from the previous quarter. The end of the government’s tax incentives and ongoing foreclosures are contributing factors.”
S&P Case-Shiller Index (black line) versus S&P 500 Stock Index (red): If housing is leading US stocks—Ut Oh!
“Professor Marvel: Professor Marvel never guesses. He knows!”
Professor Marvel, Wizard of Oz
That sounds a lot like another professor we know. Forever affectionately known to us as “The Ben-bernank” thanks to this priceless clip on YouTube: “The Ben-bernank”
All that money from “The Ben-bernank” and so little to show for it; this ain’t your Grandfather’s Dustbowl!
Continued pressure on housing will continue to pressure state and local governments as tax revenues fall further…which reinforces the potential for a blowup in the municipal bond market…
Toil and trouble brewing in all those “safe” muni bonds! If you own municipal bonds and think they are safe, we think you should think again…
Excerpts from, “The Municipal Bond Bubble,” December Issue of Reason Magazine, witten by Veronique de Rugy:
Since 2000 the total outstanding state and municipal bond debt, adjusted for inflation, has soared from $1.5 trillion to $2.8 trillion. The recession didn’t slow the spending.
One reason for higher demand is the belief in safety of munis; the historical default rage has averaged just 0.01 percent annually from 1970 to 2006.
According to the Investment Company Institute, $84 billion went into long-term municipal bond mutual funds in 2010, up from $69 billion in 2009. And the 2009 level represents a 785 percent increase from the 2008 $7.8 billion.
Cities and states increased debt dramatically starting in 2008 thanks to a Fed subsidized program “Build America Bonds.” This puts the US Treasury on the hook for 35 percent of bond interest payments.
The parallels with the housing bubble are growing. Remember those low-risk mortgage backed investments? Like homeowners, states and cities splurged on debt and found inventive ways to get around borrowing limits to finance projects they couldn’t pay for otherwise.
“Spreads on CDSs have been growing, and the dollar amount of CDSs on municipal has grown in the last year. That’s a clear warning sign that people are effectively starting to short the muni market,” said Brian Fraser, of Richard Kibbe & Orbe LLP.
Municipal Bond Exchange-Traded Fund (MUB) Daily: Turning over again…
“Some people without brains do an awful lot of talking.”
The Wizard of Oz
The US Fed is adding to the eurozone emergency fund? Say what? Hello. Knock-knock…Are there any grown-ups at home in our major institutions of “power”?
JR and I, always thinking in economic terms, you know—efficiency, and marginal utility, and all that– were thinking, when we heard the Fed was going to “help” the Europeans again, why not just take that money “The Ben-bernank” wants to send across the pond and pour it down a rat hole. That way, the money would disappear much more efficiently and no one would pretend it is going to “help” and keep the farce alive that the single monetary union is good for Europe and the rest of us.
“That’s the scary part. I didn’t know if I should smile, crack up, scream or run.”
Dorothy, The Wizard of Oz
We suggest you run Dorothy—run as fast as you can down that Yellow Brick Road. [Ironic gold as safe haven in our story, given that The Wizard of Oz—the book—was a fight to hang onto the bi-metal standard in the US, i.e. Williams Jennings Bryant Cross of Gold speech (he played by the Cowardly Lion). Populists and western silver mining interest saw the gold standard as the Northeastern power banking establishment jerking them around. Some things just never seem to change—do they?]
[Gold vs. US Dollar Index Chart Next Page]
Gold (black) versus US dollar (red) Daily: Our two “safe haven” heroines are starting to move in unison again. Just as they did when the good old credit crunch got very ugly …
Bottom line: We see so much darn risk out there it is scaring us. If a US double-dip is on the way in the midst of a eurozone sovereign debt cum banking crisis and as China growth inevitably slows—the new credit crunch would make the last look tame.
“If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold!”
Williams Jennings Bryant
Just insert “fiat money” in place of “gold” in the above paragraph and I think it brings Mr. Bryant’s concerns pretty much up to date.