Wall Street Journal comedy routine

WSJ: New Analysis Finds Housing Crash Worse Than Advertised

Tuesday, 22 Feb 2011 02:05 PM

By Charles J. Little

A downward revision of existing home sales may show the housing slump has been even deeper than originally thought, The Wall Street Journal reported. A new survey suggests the housing crisis was so disruptive to the flow of market information it led the National Association of Realtors (NAR), long considered the leading authority, to overstate sales of previously owned homes by millions of units.

“This is an economic data issue, not a gaming-the-numbers issue,” said Sam Khater, a senior economist at CoreLogic, a real-estate analytics firm that revisited the NAR numbers and says they could be inflated by as much as 20 percent. “Any time you get big shifts in the market, the numbers go haywire for a bit."

NAR, using a sample of overall sales data, reported 4.9 million purchases of previously owned homes in 2010, 5.7 percent fewer than the 5.1 million sold in 2009. CoreLogic, tracking property records in court, found fewer purchases across the board and a bigger year-to-year drop: 3.3 million existing home sales in 2010, 10.8 percent fewer than the 3.7 million sold in 2009.

An NAR economist said the association is studying the CoreLogic numbers “very carefully.”

Read more: WSJ: New Analysis Finds Housing Crash Worse Than Advertised

Unemployment shenanigans

Just for fun I will note, in case you haven't figured out that the unemployment numbers are ridiculous and have no relationship to reality, that it looked like we gained jobs in the last few weeks because half a MILLION people have been on unemployment so long they can't get it anymore. That's two YEARS of unemployment checks, and they still don't have a job. Just for the record, the government counts that as a big win, fewer unemployed people (meaning fewer still actually receiving unemployment checks) Funny.

Experts really getting it now

Barron's: US Will See Run on Treasurys, Hyperinflation

Wednesday, 05 Jan 2011 10:44 AM

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By Greg Brown

Investors in U.S. debt around the world are worryingly near a "psychological breaking point" that could force a "run on the bank" against Treasurys.

If that happens, hyperinflation quickly follows and gold will soar much, much higher from its now record-setting levels, argues author and longtime trader Victor Sperandeo in the latest issue of Barron's. Sperandeo has traded for many top investors including George Soros.

Anyone who believes that the United States faces a comparatively mild 1970s-style inflation risk is ignoring history at his own peril, Sperandeo writes in the weekly investment newspaper.

"Unlike normal inflation, which may be attributed to a variety of factors, hyperinflation has a single cause: It occurs when a government cannot borrow money because its debt has risen so much that investors believe they will never be paid back with close to the same purchasing power," he writes.

Historically, he writes, investors lose confidence in government debt when borrowing hits 40 percent of spending over an extended period of years. The telltale sign will be non-annualized inflation of 50 percent or more in a single month.

In 2009, the author notes, the deficit was 44 percent of spending, although not all of it was borrowed. It happened again in 2010. U.S. debt is now more than $13.7 trillion (not counting state and agency debts) and deficits are running $1 trillion a year.

"A nation needs to inspire a lot of confidence to keep that Ponzi scheme alive," Sperandeo writes.

"Unfortunately, markets know that even the U.S. government will print money to meet expenses when necessary."

The key is the gap between the rate paid investors to own Treasury debt vs. the inflation rate. If that narrows by too much, there is no longer any compelling reason to hold the debt. Foreign investors then dump U.S. bonds in a rush not to be left holding the bag.

Right now, Sperandeo points out, 30-year Treasury bonds pay 4.21 percent. Inflation might be low, but it has averaged 4.12 percent over nearly a half-century. Foreign holders of U.S. debt know perfectly well how tiny that return gap is and how fast it can turn into a loss.

"This leads to the question, being asked from Beijing to Brussels: Does the risk match the reward? A negative response to that question could lead to hyperinflation," writes Sperandeo.

"Potentially, investors in U.S. debt will begin something similar to a run on the bank, selling Treasurys, even at severe losses."

If hyperinflation takes hold, expect gold to run quickly higher, Sperandeo writes. In hyperinflation, the metal can gain between 2,000 percent and 50,000 percent in value against a hyperinflated, collapsing currency.

Meanwhile, a retiring member of the policy committee of China's central bank has reiterated his call for China to cut its holdings of U.S. Treasurys in order to minimize losses on its foreign-denominated exchange reserves.

Read more: Barron's: US Will See Run on Treasurys, Hyperinflation