What if House Prices Fall by 30% Worldwide?

by Gary North

In the midst of local house-buying manias, the classic mark of the end is when buyers line up to buy a house and bid against each other. This is the best way to sell a house and the worst way to buy one.

Why do buyers do this? Because they have missed out again and again by offering less than the listed price. The buyers who offered the listed price bought the house.

[I did this in February, 2005 for my home. The other family thought that $90,000 for a 4-bedroom house was too much to pay. They were wrong.]

Then the panic escalates. Those offering the listed price get left behind. They wait too long. "Too long" means more than one day after the house comes on the market. They hesitate. He who hesitates is lost in a seller's market.

Read the rest

Shadow of European Slowdown Looming

LONDON (MarketWatch) - Central bankers meet Thursday in London and Frankfurt, shadowed by growing evidence that U.S. economic woes are threatening prospects for growth in the United Kingdom and in the 15 European nations that make up the euro currency.

While recession fears have seen the Federal Reserve downplay inflation worries to slash interest rates, the Bank of England has eased at a cautious pace and the European Central Bank has held its fire.

In recent weeks, Bank of England Governor Mervyn King has signaled that slowdown worries slightly outweigh inflation concerns, analysts say, while ECB President Jean-Claude Trichet has remained steadfast in emphasizing price stability as the all-encompassing concern of continental monetary policymakers.

Markets now widely expect the Bank of England to trim its key lending rate by a quarter point to 5.25% Thursday, while the ECB is still expected to hold its key rate steady at 4%.

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Taking a Dump

Ambrose Evans-Pritchard is reporting that Switzerland's central bank is to dump a further 250 tons of gold. The stink you smell is manipulation.

There are two ways in which you can look at this situation:

1. Gold has continued to rise over the last seven years, amid Central Banksters dumping their Gold reserves. Without this overt manipulation, who knows where the price of Gold would have been today? Central Bank Inflation will continue to play a major role over the next couple of years. Trying to hide it by pushing down the price of Gold , will have the opposite effect on the price of Gold in the long run. You can fool some of the people some of the time, but you can't fool all of the people all of the time.
2. Huge sell-offs like these might drive the price of Gold down, but inadvertantly, that creates an opportunity to buy more Gold at a lower price. Also, remember that the cost for mines to produce an ounce of Gold has gone up immensly. If the price of Gold is too low, there will be little incentive for mines to consider investing in future mining projects. On top of that, South-Africa's production levels are decreasing at an alarming rate. As of January 2008, China has overtaken SA as the world's number one gold producer.

Therefore, unlike the Central Banks, I don't have any intention of taking a Golden dump.

FMM comment: Please note that I'm not dishing out any investment advice. I'm just sharing my oppinion.

Who’s Been Goosing Goldilocks?

The Myth Of Free Markets

"The power of myth is extraordinary. Correctly applied, the ignorant will believe themselves enlightened and slaves will believe themselves free."

When credit markets began to unravel in the summer of 2007, central bankers and economists were surprised. In retrospect, they should not have been. Warnings of a speculative bubble were issued as soon as cheap credit began distorting housing prices in 2003. Denial, however, always trumps reason in the presence of profits—or ulterior motive in the case of Greenspan.

So it was in the 1920s in the US, in the 1980s in Japan, in the 1990s in the US and it will be so again in the 2000s in the US—all large speculative bubbles ending in collapse; but this time, like in the 1930s, the collapse will affect the entire world, for another global depression may be in the offing.

Credit, like steroids, is a potent tool and is now the prime mover of financial markets in New York, London, Tokyo, Hong Kong, etc. The interest rate of central banks measures the flow of liquidity in the form of credit that credit-addicted global markets depend on and crave; but credit like steroids, with continued usage will destroy the body it once helped—Parcus nex, sic economic death, is the next stage in our deadly dance with debt.

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Pushing on a String?

WHAT THE FED GIVETH, the banks taketh away.

Just days after the U.S. central bank completed its unprecedented 125-basis point easing in its key policy rates, its quarterly survey of bank lending officers showed they had become much more stringent in their extension of credit.

That's key because people and businesses don't borrow from the Federal Reserve, so how much credit the central bank provides, and at what price, affects the private economy only indirectly. It takes a banker or other lender to make that loan to pay for a house or a piece of capital equipment. Indeed, the Fed acknowledged as much when it slashed rates last week, noting that financial conditions had tightenened.

Even as the Fed has made the raw material for those loans cheaper, bank lending officers indicate a far warier attitude toward making new loans, especially -- surprise! -- "nontraditional mortgages." Some 85% of loan officers responding to the quarterly survey they tightened lending standards for this category, which includes subprime.

Read the Rest


FMM Comment: My post yesterday, The Big Credit Squeeze, also refers

Financial Setbacks

By Bill Bonner

"There is no magic to Free Enterprise. It is the best way to create wealth, but it does not prevent people from making mistakes. Capitalism offers people a chance to make money. But it also offers them a chance to make fools of themselves."

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Commodity Conundrum

by David Petch


The following article was presented on Saturday, December 15th, 2007 for the benefit of subscribers.

Inflationary cycles are always manifested towards the end with rises in commodity prices that become equivalent to a black hole where money gravitates. Increasing the supply of money is the very definition of inflation, with rising prices being a symptom. Interest rate cycles tend to last 20-30 years starting from a decline to a base, followed by peak. Central banks use interest rates as the brakes of an economy and is the primary tool used under fiat currencies. Central Banks could stop printing money, but that would lead to a deflationary collapse, which is not a desirable outcome...so inflation it is. After interest rates rise to cool things on a Cycle Degree, periods of declining interest rates occur which will often see a decline in prices. Money is still being printed in the background, so the general overall theme is inflation, albeit maybe 1-2% instead of 15-20% near the end of the cycle. As economies begin growing with lower interest rates a credit economy emerges where companies and people essentially leverage their ability to purchase goods and pay it back later (a totally different concept than "Pay if Forward").

Towards the end of the credit cycle, inflation begins to grow due to expansion of the money supply and credit (due in part to the fractional reserve system used by banks). Rising interest rates eventually makes borrowing expensive, thereby quashing demand for things and causes scaling back in consumption sectors of the economy. During this phase, there is an increase in the amount of money circling the globe to try and find somewhere to park into something "tangible". Gold and silver and are often viewed as "tangible" items once the economy shifts from a credit economy to a "necessity economy" (paying only for the essentials such as heat, food, fuel for transportation etc.).

Supply and demand dynamics generally see commodity prices rise during the terminal portions of inflation cycles and decline during subsequent periods of disinflation. Once disinflation kicks in, commodity prices historically decline to near or below operational costs, which cause many companies to collapse. Once demand begins to outstrip supply, commodity prices begin to turn around.


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Ron Paul Beats McCain in Maine Caucus, Primed to Win Over 1/3 of State Delegates

From www.ronpaul2008.com

In the race for delegates, Ron Paul appears to closely trail Romney for first place

FOR IMMEDIATE RELEASE
February 4, 2008

ARLINGTON, VIRGINIA – While most reports about this past weekend’s Maine Caucus focused on the purely symbolic presidential preference poll, in the meaningful race to secure delegates to the state convention Ron Paul is primed to finish second with likely 35 percent of the total delegates.

Delegates to the Republican National Convention in Minneapolis are elected by the state delegates. Internal results from 10 of 16 counties, including the largest cities of Portland, South Portland, Lewiston, Auburn, Augusta, Waterville, Bangor, and Brewer, show Ron Paul picking up 215 of 608 State Convention delegates so far reported, or 35%.

“Ron Paul’s strong second place finish in Maine, in which he beat John McCain, is proof that this race is far from over,” said Ron Paul campaign manager Lew Moore. “We’ll continue to battle for every delegate in this wide-open race for the Republican nomination.”

In the presidential preference poll, with 70 percent reporting, Ron Paul is in third place just two percentage points behind John McCain. However, the Maine preference poll is purely a beauty contest, and in the actual election of state delegates the so-called “frontrunner” McCain is far behind Ron Paul.

Ron Paul's Greatest Speech?

Before the US House of Representatives, September 19, 1984

Mr. Speaker, I shall be soon leaving the House and have asked for this special order to make a few comments regarding the problems our nation faces and the actions needed to correct them. Having been honored by the 22nd District of Texas to represent them for four terms, I have grown to appreciate the greatness of this institution. I only wish the actions performed by the Congress in recent years could match the historic importance of this body.

Thousands of men and women have come and gone here in our country's history, and except for the few, most go unnoticed and remain nameless in the pages of history, as I am sure I will be. The few who are remembered are those who were able to grab the reins of power and, for the most part, use that power to the detriment of the nation. We must remember that achieving power is never the goal sought by a truly free society. Dissipation of power is the objective of those who love liberty. Others, tragically, will be remembered in a negative way for personal scandals. Yet those individuals whose shortcomings prompted the taking of bribes or involvement in illicit sexual activities, have caused no more harm to society than those who used "legitimate" power to infringe upon individual liberty and expand the size of government. Morally the two are closely related. The acceptance of a bribe is a horrible act indeed for a public servant, but reducing liberty is an outrageous act that causes suffering for generations to come.

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Hear No Evil, Speak No Evil, See no Evil - Just Cut the Cable

Something weird is going on here. First, two communication cables were cut which got me thinking that Something Smells Fishy Here.

Now, a total of four cables have been cut, IN A WEEK!!!

Is somebody, with a pre-emptive motive, trying to cut off the Middle-East from the rest of the world???

FX Insights Trade Team Update

By FX Insights Moderator,

Sorry for the delay in getting today's update posted... was a crazy day with meetings and such.

As far as the EUR/USD is conerned, we had an extremely boring day... tight ranges, no decent price action... once again the Dow stumbled, which didn't help matters.

So I'm going to use today's update to cover a few things that are on my mind in regards to the market and the EUR/USD... some food for thought stuff...

One question that is on many trader's mind is why we're not seeing a lot of volatility or decent price action the past week... there are a few factors contributing to the market being seduced into a lull...

Lets start with risk aversion... banks, hedge funds, institutions, wealth managers, and traders are simply not taking on risk under current market conditions. With all the uncertainties of a U.S. recession, global recession, slow growth coupled with rising inflation, central bank fears, tightened credit markets, shaky equities, an unstable employment sector, and a cautious consumer sector, those big money players are playing things ultra tight and conservative.

Prime example -- the carrytrade... the carrytrade is off the table for now. Once this extreme risk aversion set in, that opened the door for pairs like the EUR/JPY, USD/JPY, and GBP/JPY to drop hundreds, if not thousands of pips... the yen has strengthened tremendously while the market is in extreme risk management mode and fear mode... it won't be this way forever, but for now, expect those once brave risk takers to play it safe.

So how does this season of risk aversion effect the EUR/USD? Quite simple... for the big money players it's not an attractive buy while at the same time it's not an attractive short... with the banks being on lockdown and the institutions dealthy afraid of taking more losses, buying the euro at 1.4800-1.4900 is not going to happen... the alternative would be to buy the dollar, and with the dollar remaining fundamentally weak and the prospect of the Fed cutting rates further, who seriously would buy the dollar right now?

The market is in desperate need of not just a good, but a safe reason to either buy the EUR/USD or short the EUR/USD. The central banks are not helping matters either... both the Fed and the ECB is keeping the heavy EUR/USD bears in hibernation for now... with the Fed in a rate cut cycle and with the ECB remaining hawkish on rates and price stability, euro bears are not going to push the EUR/USD down, they really can't at this point.

Fundamentally, the U.S. economy has shown little signs of life. In the Eurozone the coming economic slowdown has yet to begin, which is another factor why we're just floating in a tight range...

Hopefully this sheds some light on why the market is behaving the way it's been behaving the past week or so...

EUR/USD trading:

I believe the market is also in a holding-pattern as we wait for Thursday's ECB rate decision, and more importantly, Trichet's press conference...

Early tomorrow morning we have key PMI and retail sales data out of Germany and the Eurozone... PMI may come in above forecasts while retail sales could possibly dissapoint, regardless, I don't expect this to have any major market moving effects...

Later in the morning we get very important ISM Non Manufacturing data, which I believe we should see come in USD+... whether or not the market decides to make any big moves is not something I'm looking at, but I'll certainly be prepared for...

As far as trading goes, I remain euro long -- cautiously long -- this means unless we get a signal I and I feel comfortable, I am in no way, shape, or form adding any euro longs at these levels... all of my longs are below the 4750 level and I'll keep it that way for now... any moves above the 1.4900 level would be an area I'd like to add a euro short, should price allow...

I do have some key downside/updside levels:

Downside key levels --

4801
4783
4752
4738
4708

Upside key levels --

4852
4878
4893
4920
4954

Lastly, in today's Q and A session we talked about the Team doing more live trade calls in the chat... I'm going to do a post on exactly what and how this will work...

Posted below is a chart from two calls we made last night and early this morning, just to give you an idea:

Click on Image

That's all for now... we'll see ya in the chat!

-FX Insights

Paving Paradise

By Ron Paul,

The Constitution guarantees Americans the right to be secure against all unreasonable seizures. My home state of Texas is unfortunately planning on some very unreasonable seizures of land with the monstrous Trans Texas Corridor highway project. The TTC plans call for a highway to cut through about 4,000 Texas miles, and with separate rail lines for passenger and freight, a multi-lane highway with separate truck lanes, utility and cable easements, this highway could be as wide as 1200 feet across. In the end this project would consume something like half a million acres of land in Texas . However, since the exact path of the road has not been determined, it is putting much more acreage in jeopardy, and in limbo.

Taking land is destructive enough. But the perpetual threat of taking an undetermined amount of land is hanging over the heads of millions of Texans and putting their lives at a standstill. Land is a store of wealth and a source of stability. This highway project is tragically threatening that for so many Texans.

The principle of private property is the cornerstone to a free and prosperous society. In situations where a colossal government land grab is a distinct possibility, investment or improvement becomes more risky with an uncertain future and tends not to happen. How do you sell land that may or may not be taken by the government at some point in the not too distant future? Who would buy it? How do you cultivate or build on, or even near, land that may or may not be paved over and turned into a massive, noisy thoroughfare in a few years?

Even more insulting is the distinct possibility that, while the road will collect tolls and fees, making a private foreign firm billions of dollars in revenue, the costs of building it could be heavily borne by taxpayers. So the costs will be socialized and the profits privatized. Public-private partnership indeed!

From Washington I have voiced my staunch disapproval of taking these hard-working taxpayers’ land for a private toll road, by introducing legislation (HR 5191) that simply states, “No Federal funds appropriated or made available before, on, or after the date of enactment of this Act may be used by a unit of Federal, State, or local government to carry out the highway project known as the 'Trans-Texas Corridor'.” I am working hard in Congress to make sure that no Federal funding is used to undermine property rights in this way.

We should be focusing on guarding and securing our borders for the protection of the American people. Instead we are paving the way for more and more people to cross the border as comfortably as possible. And taking the family farm to do it. It is an absolute outrage.

Capitalism and the American Way

By Bill Bonner,

"Capitalism we define as merely a state of nature…where people are free to go about their business based on customary, consensual rules in an evolved, vernacular market system. The more you tamper with it, the less well it works."

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The Big Credit Squeeze

WASHINGTON (MarketWatch) - Banks are putting a stranglehold on credit, the Federal Reserve reported Monday.

Banks are raising their credit standards for mortgages, consumer loans and commercial real estate loans at a pace never seen in the 17-year history of the Fed's quarterly survey of senior bank loan officers, the Fed said.

Plain-vanilla business loans were also much harder to obtain, the Fed said.

Banks expect more delinquencies and charge offs for most types of loans to consumers and businesses, the survey said. Banks said they were tightening their lending standards in response to weaker economy, reduced tolerance of risk, and decreased liquidity in secondary markets.

The survey backs up the Federal Open Market Committee's comments last week that credit conditions had tightened considerably, a factor that led to the FOMC to slash interest rates by an unprecedented 125 basis points in two weeks.

Read The Rest


FMM Comment: Three things are happening here.

1. Banks are hoarding cash because Bank Reserves Go Negative
2. People can't or don't want to borrow
3. Banks can't or don't want to lend

Something the Fed can NOT do is force people to borrow. It can only sweeten the deal with low rates. So, if you are struggling to either inhale or exhale, you are suffocating, like the credit markets are doing now. It is just a matter of time, unless some "miracle" happens, before the credit market will turn blue in the face and collapse. And that, is called Deflation.

Sci-Fi Toys for War-Mongering Boys

Today, Bush-Whacked amBushed the USA with his new $3.1 Trillion Gazzillion budget.

Included in this Magnus Opus of Keynesian-Tomorrow-is-Another-Day-Defecit-Spending Budget, is a proposed increase in Defense Spending of 7%, to $515 Billion (16.5% of the fricken budget!!!).

Now, to me, that sounds like preperation for a pre-meditated war against someone. (And the further devaluation of the Dollar and an increase in Gold/Oil prices)

And don't forget, that waiting in the wings are the two warmongers, Osama Obama and John McCainiac, who I'm sure are wringing their grubby little paws to fill the seat of the Master and Commander.

Part of their anticipation, I'm sure, is to gain control of the game console, War-Station 2, with the $515 Billion being spent to create Sci-Fi WMDs. For instance, the Navy is Testing an Incredible new Sci-Fi Weapon, using electromagnetic energy instead of explosive chemical propellants to fire a projectile farther and faster. (apparently electromagnetic energy will prevent "blowback")

The railgun, as it is called, will ultimately fire a projectile more than 230 miles (370 kilometers) with a muzzle velocity seven times the speed of sound (Mach 7) and a velocity of Mach 5 at impact. The railgun has been a featured weapon in many science fiction universes, such as the new "Battlestar Galactic" series.

The Navy's motivation? Simple destruction.

The railgun's high-velocity projectile will destroy targets with sheer kinetic energy rather than with conventional explosives.

I suggest they change the term of "railgun" to that of the "Psycho-Kinetic WMD"

Entangling Alliances

Revealed: British plan to build training camp for Taliban fighters in Afghanistan

Britain planned to build a Taliban training camp for 2,000 fighters in southern Afghanistan, as part of a top-secret deal to make them swap sides, intelligence sources in Kabul have revealed. The plans were discovered on a memory stick seized by Afghan secret police in December.

The Afghan government claims they prove British agents were talking to the Taliban without permission from the Afghan President, Hamid Karzai, despite Gordon Brown's pledge that Britain will not negotiate. The Prime Minister told Parliament on 12 December: "Our objective is to defeat the insurgency by isolating and eliminating their leaders. We will not enter into any negotiations with these people."

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Axa axes withdrawels

Life and pension firm Axa has barred redemptions from its Life Property and Pension Property funds for up to six months in a bid stop panic selling.

AXA has written to all its customers who are invested in these funds and their advisers. The decision will impact upon some 100,000 private investors.

Certain transactions will not be affected by the deferral, including regular withdrawals, death claims and payment of pension benefits on retirement.

Axa is the latest in a growing list of firms to take such action to restrict access to their assets to prevent a Northern Rock-style run on their resources. There is now around £8bn of investor cash locked up in property funds.

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Beating the Boiled Egg

First they court you, then they marry you (for all the wrong reasons), and now they want a divorce. A boiled Egg is hard to beat .

But it appears that they forgot to check the prenup.

The ECB Rate Rebels

By Nico Isaac

On January 28, the annual International Monetary Fund meeting was held in Davos, Switzerland. There, the world’s economic leaders came together to address the central concerns facing the global marketplace.

Result: the European Central Bank was put under more fire than a spit-roasting pig.

The short version is that the ECB has opted not to join the U.S. Federal Reserve’s rate-cutting crusade; instead, holding rates firmly to a six-year high of 4% since June 2007. Lofty rates, so say the "experts," keep the euro at record-high levels, which further compounds the setbacks currently facing Eurozone economic growth.

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Barack Obama vs. Ron Paul

War vs. Peace