Thursday, September 24, 2009

Home Sales Fall? Really?

Existing home sales in August took a "surprising" U turn in sales it was reported this morning. After months of rising sales they fell sharply last month.

A much more important piece of information in the data was not the number of homes sold, but the price range where homes were selling.

70% of all homes sold in August were under $250,000.

The major reason for this, as I have been discussing relentlessly, is the new role of the government in lending through the FHA. The FHA is guaranteeing loans now with interest rates below 5% and buyers only have to put down 3.5%. (It is 0% down with the government cash for dumpers program in place)

The FHA guarantees the loans and the loans are stored on the books of Ginnae Mae. This is the sister of Fannie and Freddie and the new major warehouse for toxic garbage. The FHA, with its partner Ginnie, is now purchasing and guaranteeing 80% of all new home loans created.

The losses coming for both the FHA and Ginnae Mae are going to be in the hundreds of billions. It does not matter though because these are government agencies and its only taxpayer money.

Also in the news this week is the FDIC which continues to travel the country, close banks as they fail, and guarantee the bank deposits and debts for these banks moving forward.

I've stated for the past six months that they were going to need a massive bail out because their reserve funds were going to be wiped out. The head of the FDIC has continuously stated over the past six months that a bail out was out the question.

This week they announced they would be tapping the treasury for an "emergency" $100 billion credit line.

Shocking.

They have an additional $400 billion waiting for them that was granted back in March of this year. Fortunately for us they will probably only need about $300 of that $400 billion.

Meanwhile, we continue to hear about the state budgets heading toward bankruptcy all across the country. Obama had $49 billion of his $800 billion "stimulus" package this year dedicated to "stimulating" local government spending and growth to help revive the economy. $48 billion of that money has already been used, not for stimulating local states, but to fill the holes on their balance sheets and keep them out of bankruptcy.

As real estate prices continue to collapse and businesses closes their doors, tax receipts will dwindle in the next few years. States are hardly paying attention and no one is scrambling to cut government spending. (Other than California)

Why? Everyone knows they will be bailed out by Obama.

The true spending though is coming from the one bright economy in our country; Washington D.C. I have many friends that live up in D.C. and some that work for the government. I called a buddy of mine up on the phone last week to see how things were. I assumed with our country running a $2 trillion deficit that they must be slashing his pay considerably.

His answer? They are giving him a 15% pay increase this year and every government branch around him is on a hiring spree. Its free money for everyone up there. Obama is making it rain.

Of course, as D.C. continues to shine, it is sucking the life out of the rest of the country. If the government raises spending by 15%, that means it must take 15% from some other sector of the economy through taxes, but no one cares about that. They need to stimulate, Obama must save us with his spending.

The FHA is buying every new loan in this country, our bankrupt FDIC is now tapping emergency funding, all the state governments are moving toward insolvency, the government is growing its spending exponentially, and our foreign lenders are heading toward the exits.

This afternoon legendary investor Julian Robertson who runs the Tiger Management Fund, said that the United States is facing armageddon if China and Japan slow their purchases of US debt.

Lets hope that Obama can give an incredible sales presentation this week at the G-20 meetings.



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