I’ve been saying this for months. At the end of the day, the financial health of many US States would compare to the financial health of Greece and other European Union countries having financial troubles. I may have been optimistic in my assumptions with the cost to insure the debt of some US States now exceeding the cost to insure the debt of some of these financially suspect countries. This from Bloomberg on August 21, 2010 (emphasis added):
Investors have to pay 284 basis points to insure their California bonds, 20 basis points more than for Portugal’s. At 298 basis points, Illinois is in worse shape than Ireland. It costs more to insure the debt of New York (224 basis points) than Italy’s.
Credit-default-swap spreads show that these U.S. states are “on the brink of financial catastrophe,” according to Justin Marlowe, an assistant professor at the Daniel J. Evans School of Public Affairs at the University of Washington in Seattle.
The headline-worthy spreads haven’t harmed these issuers in the bond market. They have reduced their cost of borrowing.
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In my opinion yes. Based on what I’ve seen in the past couple of weeks, stock investors may need to beware. While markets rarely go straight up or straight down, I believe the evidence suggests that over the next few months, the trend will be down. Here are some of the reasons:
One: Since the April highs in the US equity markets, the market has been making lower lows and lower highs for the most part.
Two: A “head-and-shoulders top” has formed in many US Equity markets. Technical analysts use this term to describe a pattern of stock and/or index prices. The pattern has three peaks. The first and third peaks are shoulders, and the second peak forms the head. The “head and shoulders” formation is believed to be one of the most reliable trend-reversal patterns. The top formation is a bearish signal and indicates the possible beginning of a downward trend.
Three: At the beginning of July, the 50 day moving average of market values on major US indices passed below the 200 day moving average. Moving averages data is used by technical analysts to create charts that show whether a stock or indices’ average price over a defined period of time is trending up or down. This crossover is an infrequent occurrence and often precedes declines.
Four: The fundamentals are ‘catching up’ with equity market technicals. A Bloomberg report on August 21 reported that US jobless claims are up and US manufacturing activity is slumping.
Five: Deflation talk is resurfacing. While I’ve been saying for months that debt is by its very nature deflationary, mainstream media is now beginning to discuss the dreaded “D” word. This from an article in The Daily Caller on August 21, 2010 Read more »
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Have you heard of “buy and bail”? It’s the latest real estate scam. This published on Bloomberg last week. (http://www.bloomberg.com/news/2010-08-10/-buy-and-bail-homeowners-get-past-mortgage-hurdles-from-fannie-freddie.html):
Harvey Collier, a mortgage broker in Fort Lauderdale, Florida, says he gets as many as 10 calls a month from people planning to default on their loans. The twist: They first want financing to buy another home.
Real estate professionals call it “buy and bail,” acquiring a new house before the buyer’s credit rating is ruined by walking away from the old one because it’s “underwater,” or worth less than the mortgage. It’s an attempt to escape payments on a home whose value may never recover while securing a new property, often at a lower price with a more affordable loan.
The practice, which constitutes fraud if borrowers lie on loan applications, is continuing even after Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies, beefed up standards to prevent it, according to brokers such as Collier and Meg Burns, senior associate director for congressional affairs and communications at the Federal Housing Finance Agency. Whether driven by greed or desperation, the persistency of buy and bail underscores the lingering impact of the worst housing crash since the Great Depression. Read more »
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