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"The people who cast the votes don't decide an election; the people who COUNT the votes do." -- Joseph Stalin

Wednesday, January 6, 2010

The Mortgage Mess is Just Beginning

ARM Option Loans and All-Pay Loans are coming home to roost. Here we go again...

Now the real "fun" begins. In a boxing match, a good referee will take a boxer out who's been hit so hard, he's staggering and obviously in danger if he continues.

Why? The potential damage from follow up blows to someone already in a weakened state is exponentially higher than from the first one.

Unfortunately for the credit market, there's no referee to call a time out.

A second blow in the form of a second major wave of real estate loan defaults is on its way - and nothing can stop it. My guess is that the credit market is being propped up now during the lull so that the banks can sell off their holding to suckers (us) before the real carnage begins.

Imagine two trainers propping up a nearly unconscious fighter as his opponent warms up for one final blow and you've got a good idea of the situation we're in. Here's how it looks from the trading floor - from the mouths of people who know what's going on and aren't afraid to say so.


Key Points:

"This market continues to be propped up by government intervention and manipulation."
"They're trying to prop this market up on a daily basis and they're doing a good job."
"Every single day we have some kind of backstop from the government."
"These markets are not free markets any more."
"We're at a point where no capital transactions are getting done without some intervention from Washington and I wonder how we ever get off these vitamin pills."
"It's not really healing if you're just passing liabilities from private debt to the public debt - from one balance sheet to the other."

How to get ready. People often ask me where the economy is headed. Isn't it obvious?

Here's the scoop:

1. The world runs on credit - and not just credit cards and mortgage loans. Shippers, manufacturers, miners, retailers, farmers...they're all dependent on credit.
2. The credit markets are still in disarray and the structural problems are on an epic scale
3. The only reason the credit markets are functioning is because they're being propped up by non-stop government intervention.

So you tell me... If you pay a visit on a friend and he has eighteen tubes in him and is on a ventilator, how healthy do you think he is? What do you think his prospects are?

My recommendations are simple:

1. Stop spending money on non-essentials.
2. Don't make any purchases (real estate especially) that requires credit and don't take on new debt.
4. Save every nickel you make.
5. Make sure whatever cash assets you have are distributed among several financial institutions that have the highest possible rating.
6. Learn to cook healthy food - grains and greens - and get acquainted with where your food comes from and other practicalities of survival.
7. Remember that there's life beyond the consumerist frenzy that has characterized the last 30 years.

If you think this is "alarmist" and "negative" do your own homework. The numbers don't lie.

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