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Monday, May 24, 2010

Reading Between The Lines

In a post titled, "Awareness" that I did last week, I talked about staying in touch with the world around you.  To be successful, and stay ahead of what's happening, you need to read about EVERYTHING that's going on - financial, political, international, etc.

I should have also mentioned that the information you read might not be worth the electrons on which it's printed.  It's important to dig deeper some times.  As Paul Harvey used to say, "And now... the REST of the story!"

Take home sales, for instance.  We hear talk about how sales are up.  The Government Scribes (reporters) might make mention about how inventories are also up (uh oh), but it's really no big deal.

Well, how's this for a big deal?  If the government wasn't guaranteeing the loans being made, they wouldn't be made at all!

Yep, it seems as though a really, really big percentage of home mortgages are guaranteed by one governement entity or another.  How much?  20%?  50%?  Certainly not 75%!

No, how does 90% grab ya?
The FHA and Fannie Mae and Freddie Mac, which regulators seized in 2008, have been financing more than 90 percent of U.S. home lending after a retreat by banks and the collapse of the market for mortgage bonds without government-backed guarantees.
Banks won't make home loans unless they are guaranteed by the federal government.  Why?  Because no one believes we're anywhere near the bottom of the market.  Not even close.

I'm guessing that the Small Business Administration is doing some "volume business" right now as well.  If you were a bank, you'd have to be out of your mind to make a commercial loan right now.

Unless Nanny guaranteed it for you, of course.

So really, how bad is this market?

Not so good.  That is, if you believe the head of the Federal Housing Administration (FHA) -
FHA lending last quarter may have topped the combined volume of government-supported Fannie Mae and Freddie Mac in a home-lending market that’s still a “government-financed market,” David Stevens, the agency’s head, said today at a conference in New York, citing research by consultant Potomac Partners.

“This is a market purely on life support, sustained by the federal government,” he said at the Mortgage Bankers Association conference. “Having FHA do this much volume is a sign of a very sick system.”
Ya think?  (Question to self:  How long is this guy going to stay employed with this administration?)

So, the next time you hear how great the real estate market is doing, consider the underlying strength of the real market.  Take the numbers the Fed pours down the gullets of the Government Scribes, and take one tenth of that.  THAT is the real market.

Accept The Challenge

Don't be duped.  It is becoming more and more difficult to be able to make financial plans when you can't trust the information that is published.

I strongly recommend Shadow Stats if you really want to dig deep into how our economic indicators are manipulated, and what the real number are.  For instance, you know that if you are unemployed and no longer get unemployment payments, that in the government's eyes, you are NOT counted as unemployed, right?

If you dig into how the Consumer Price Index (CPI) is twisted and abused, your brain will explode.

Use third-party sources such as Shadow Stats, Calculated Risk (absolutely phenomenal stuff), and a host of other sites that dig into the numbers and turn it into information you can use.  Get the real story, not the one being handed out.

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Copyright 2010 Bison Risk Management Associates. All rights reserved. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.


theotherryan said...

I try to look at the big picture. I watch the news and read the Drudge Report and the BBC then try to sorta boil it down into broad trends.

As for the alternate news I am not so sure where I stand. The balance between not letting my information be monopolized and listening to any yahoo with a web site (speaking as one of those yahoos it is quite easy) is a rough one. If articles are properly cited with the basic assumptions/ facts coming from credible sources and meshes with some other stuff I have heard I take it for what it is. If there are no citations and it is just paranoid delusional ramblings I ignore it.

Chief Instructor said...

TOR, I'm pretty much the same way. I need to see citations of facts first, then I'll look to see if the analysis or opinions that come from those facts makes sense.

Anonymous said...

Now ask yourself why it is that all sub-prime loans are insured and yet the investors in sub-prime loans lost their shirts. The politicians blame the problem on those who sold or even those who bought these investments but they were all 100% insured. The failure was one of insurance and the bailout was necessary because the insurance was inadequately backed by assets to pay off the defaults.