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Thursday, April 16, 2009 Fed releases the content of its Beige Book... Foreclosures hit a record high for March... How to prepare for the second wave of mortgage defaults... James Kunstler on the future economy...and more! Signs of the Recessionary Times by Kate Incontrera Baltimore, Maryland Earlier this week, Bernanke asserted that the U.S. economy's decline was slowing. Yesterday, the Fed released the results of its Beige Book, which (surprise, surprise) backed Big Ben's assessment. The business survey showed that the contraction is slowing or showing signs of stabilization across many regions, including San Francisco, New York, Chicago, Kansas City and Dallas. In addition, the Beige Book said that while "housing markets remain depressed overall...there were some signs that conditions may be stabilizing," including an increase in "potential buyers." Well, these 'potential buyers' will certainly have a lot to choose from. RealtyTrac reported today that total foreclosure filings - which include default papers, auction sale notices and repossessions - reached 803,489 in the first quarter, up 24% from the same time in 2008. Of these filings, they continue, 341,180 happened in March - a 17% increase from February and a 46% jump from March 2008. "In the month of March we saw a record level of foreclosure activity - the number of households that received a foreclosure filing was more than 12% higher than the next highest month on record," said James J. Saccacio, chief executive officer of RealtyTrac, in a statement. In other housing news, the Commerce Department reported today that building permits fell to a record-low level and construction on new homes dropped sharply last month, after a big gain in February. On top of that comes news that housing starts fell 10.8% in March - the second lowest rate since the 1940s. Wowee...the good news just keeps on coming. It's amazing to think back to the housing heyday...when people thought home prices would just keep going up and interest rates would never rise. But now, the home ATM has run dry...and the aftershocks of the 'pop heard round the world' are still being felt. As you know, dear reader, the economic meltdown we face today was sparked by the first wave of subprime mortgage defaults. Homeowners that were in over their head with mortgages they couldn't afford in the first place began to default on their loans in droves last year. Rob Parenteau, who has recently taken the helm of the reincarnation of The Richebächer Letter, warns that we are in for the second wave of these toxic mortgages ahead. The first time subprime mortgages reset at a higher rate was in 2008 and the subsequent flurry of defaults sent banks into a tailspin. Well, get ready, warns Rob. We still have "Option ARM" and "Alt-A" loan resets to look forward to...and those resets will peak in 2011. "Just like subprime," explains Rob, "these loan contracts also carry a 'reset' risk in the fine print, when already high monthly mortgage payments could as much as double - right at the height of the second biggest market meltdown since the Great Depression." Just as his predecessor, Dr. Kurt Richebächer did, Rob is giving his readers ample time to prepare for these events - and make sure their wealth doesn't get wiped away. Be sure to check out his new special report with details on how to shield yourself from an even bigger market downturn. Read it here: Seven Super Hedges Against the Coming Market Catastrophes of 2009-2010 Now, we turn to Addison with more news on the Fed's Beige Book: The mob on Wall Street is taking the bait," reports Addison in today's 5 Min. Forecast. "The Beige Book release yesterday helped push the Dow and S&P 500 up over 1.3% yesterday, their fourth rally in the last five days. "Bad news from Intel and UBS was overshadowed by nice earnings from CSX, a dividend boost by Proctor & Gamble and this news from American Express: Growth in souring credit card loans slowed in March. It's still growing, of course, but focus on the 'slower' part... and buy! "Even the decrepit IPO market showed a sign of vitality yesterday, too. Rosetta Stone, the folks who promise to teach you French or Swahili with software, went public yesterday at a price above its expected range. That hasn't happened in 11 months. Underwriters had set a range of $15-17 a share, but bidding ended up starting at $18 a pop. "This morning, the stock opened at $25. Formidable! "That's the third successful IPO in April. Not bad, considering there have only been two others since August of last year." Addison brings readers The 5 Min Forecast, an executive series e-letter that provides a quick and dirty analysis of daily economic and financial developments - in five minutes or less. One way you can be sure you never miss an issue of The 5 is to have them sent directly to your inbox - like subscribers to Agora Financial's paid publications do. One such publication, Capital & Crisis, will ensure that you not only get your serving of The 5 every day, but will also let you know how to earn extra paychecks...without taking on an extra job. See how here. Now back to Kate in Charm City: The signs of the economic downturn, whether you want to call it a 'recession' or a 'depression', are all around us. Take, for example, 11 Times Square. This 40-story tower in Midtown Manhattan has everything going for it, reports the NYT. "Floor-to-ceiling windows, still relatively rare for an office building; six terraces; a thick concrete core that reduces the need for view-obstructing columns; and many of the latest in energy-efficient technology." There is only one thing this building lacks: tenants. With sky-high rents, the possibility of this kind of space flourishing is dwindling...and it's not just this one building. The NYT cites two planned redevelopment projects in Lower Manhattan and SoHo that have been postponed indefinitely due to no construction financing - and no tenants. Belt-tightening is happening everywhere...even in the city that was one of the leaders in the housing frenzy of yesteryear. Vacancies are climbing and rents are on the decline. As Addison pointed out last week, "Preliminary first quarter data show a 60% annual crash in Manhattan co-ops and condos." Recessionary signs are spilling over to New York City restaurants as well. Reports come in that once bustling restaurants are sitting nearly empty and that 'dining incentives' such as 'BYOB Night' are popping up more frequently. These pictures, below, were taken within a two-block on Ninth Ave in Manhattan: Just a sign of the times... Until tomorrow, Kate Incontrera The Daily Reckoning --------------------- Special Offer --------------------------- Don't Miss Out on Your Chance to be a Part of History Early this month, science once again became a national priority...and this is just the tip of the iceberg. If you play this change right, you could quickly accumulate three generations of wealth. Real wealth. Wealth the markets can't touch. What you are about to read is so lucrative, we could only offer it to a limited amount of people. There are only 30 spots left...and we fully expect to sell out by the end of this week! Don't let this once-in-a-lifetime opportunity pass you by. Read the full report here. --------------------------------------------------------------- The Daily Reckoning PRESENTS: The American people and financial media remain poised to jump on any piece of economic data that points to a 'recovery' for the U.S. economy. But this begs the question, says James Kunstler, below, a recovery to what? Read on... The Coming Siege of Austerity by James Howard Kunstler Saratoga Springs, New York It's a curious symptom of the consensus trance zombifying the American public and its auditors in the media that something like a "recovery" is now deemed to be underway. And, as events compel me to repeat in this space, it begs the question: recovery to what? To Wall Street booking stupendous profits by laundering "risk" out of bad loans with new issues of tranche-o-matic securitized paper? This I doubt, since there isn't a pension fund left from San Jose to Bratislava that would touch this stuff with a stick, even if it could be turned out in collector's editions of boxed sets. Does it mean that American "consumers" (so-called) are awaited momentarily in the flat-screen TV sales parlors with their credit cards fanned-out like poker hands, ready for "action?" Not too likely with massive non-performance out in cardholder-land, and half the nation's electronics inventory wending its way onto Craig's List. Are we expecting more asteroid belts of new suburbs carved in the loamy outlands of Dallas and Minneapolis, complete with new highway strips of Big Box shopping and Chuck E. Cheeses? Go to banking's intensive care unit and inquire (if you can) among the flat-lining production home- builders and the real estate investment trusts on life support when they expect to rev up the heavy equipment. The idea that we're about to resume the insane behavior that induced the current epochal malaise of economy is so absurd it will only be heard in the faculty dining halls of the Ivy League. And if America is not picking up where it left off eighteen months ago - the orgy of spending future claims on wealth unlikely to accrue - then what is our destiny? Based on what's out there in the organs of public thinking, it seems that we don't want to think about it. So many forces are arrayed against a return to the previous "normal" that we will be lucky, in another eighteen months, to still find ourselves speaking English and celebrating Christmas. What's "out there" is a panorama of mutually reinforcing critical problems pertaining to how we live on this continent. Like the obesity, heart disease, and diabetes that plague the public, these problems are disorders of lifestyle habits and the only possible "cure" is a comprehensive revision of lifestyle. With the onset of spring weather and the cheez doodles and monster truck rallies and NASCAR tailgate barbeques and the drive-in beer emporiums all beckoning, can the public shift its attention from these infantile preoccupations to saving its own ass? So far, the most striking piece of the economic fiasco is the absence of any galvanizing spirit among the millions getting crushed in the tragic unwind of our relations with money. It will be interesting to see, for instance, if there is any uproar over the evolving story of Goldman Sachs' latest raid on the U.S. Treasury, after booking billions in taxpayer-funded payouts funneled through AIG, based on double-hedged credit default swaps. Such magic tricks are understandably hard to follow, but a dozen-or-so federal attorneys with a middling background in differential calculus might suss out the trail that leads from Ben Bernanke's work station to Lloyd Blankfein's cappuccino machine. "...if America is not picking up where it left off eighteen months ago - the orgy of spending future claims on wealth unlikely to accrue - then what is our destiny? Based on what's out there in the organs of public thinking, it seems that we don't want to think about it." Something similar may be said in regard to revelations last week of White House economic advisor Larry Summers' connection with a number of hedge funds shoveling millions into his deep pockets for showing up once a week to cheerlead their "innovations" - not to mention his shadowy visits to the Goldman Sachs gravy train even after he signed onto the Obama campaign. As long as the stock markets seem to rally - no matter what else is really going on in America - nobody will pay much attention to these disgusting irregularities. Since it is that time of year, and I am haunting the gardening shop, one can't fail to notice the many styles of pitchforks for sale. My guess is that the current mood of public paralysis will dissolve in a blur of blood and spittle sometime between Memorial Day and July Fourth, even with NASCAR in full swing, and the mushrooming ranks of the unemployed lost in raptures of engine noise and fried cornmeal. It doesn't take too many determined, pissed-off people to create a lot of mischief in a complex society. On the agenda in the second quarter of '09 are ominous rumblings in the oil and food sectors. Half a year of cratered oil prices have decimated the oil industry and we're driving at 100-miles-an-hour straight off a cliff into a new kind of supply crisis - even if industrial production and global exports remain moribund. So many drilling rigs are being decommissioned that the oil industry itself looks like it's preparing for its own death, investment in exploration and discovery has withered with the credit markets, and the world may never recover from the year long hiccup in oil industry activity - translation: peak oil is biting back now with a vengeance. Its peakness will look peakier and the yawning arc of depletion beyond will look steeper and pose a threat to every globalized and continental-scale enterprise in the known world. So many dire elements are ranging around our food production system (i.e. farming), from widespread drought and water table depletion to "input" shortages (especially fertilizers) to sickness in credit availability, that we're all one bad harvest away from something that will make Pieter Bruegel-the-elder's "Triumph of Death" look like Vanity Fair's annual Oscar Party in comparison. Barack Obama, charming as he is, had better drop his pretensions about kick-starting the old consumer economy, fire the Wall Street clowns and parasites who are running that futile exercise, and start preparing a US Lifeboat Economy aimed at reducing the scale and scope of our outlays so we can survive the coming siege of austerity. Meanwhile, I'm glad that he finally got a dog for the White House, because the President knows full well where to turn in Washington if you want some genuine love and affection. Regards, James Howard Kunstler for The Daily Reckoning Editor's Note: James Kunstler has spoken at the last two installments of the Agora Financial Investment Symposium in Vancouver. The conference is rapidly approaching...and this year marks the 10th anniversary of The Daily Reckoning. So, this July, the Symposium will be focused around a "Decade of Reckoning"...four days that will help you to gain greater insight on how to turn investment ideas into the profit opportunities of the next decade. If you secure your spot now, you can save $300 off of the regular price. Click here for all the info: The Agora Financial Investment Symposium: July 21-24 James Kunstler has worked as a reporter and feature writer for a number of newspapers, and finally as a staff writer for Rolling Stone Magazine. In 1975, he dropped out to write books on a full-time basis. His latest nonfiction book, The Long Emergency, describes the changes that American society faces in the 21st century. Discerning an imminent future of protracted socioeconomic crisis, Kunstler foresees the progressive dilapidation of subdivisions and strip malls, the depopulation of the American Southwest, and, amid a world at war over oil, military invasions of the West Coast; when the convulsion subsides, Americans will live in smaller places and eat locally grown food. You can purchase your own copy here: The Long Emergency You can get more from James Howard Kunstler - including his artwork, information about his other novels, and his blog - at his website. --------------------- Special Offer --------------------------- The Good Doctor Lives On... We lost an economic heavy weight in 2007: Dr. Kurt Richebächer. Many of you heeded his warnings and insightful forecasts about the coming housing bubble burst and subsequent credit crisis, and your portfolios were the better for it. Well, we would like to give you another chance to use the Good Doctor's warnings to avert or even recover from the later stages of financial catastrophe. We've just formed a brand new "wealth-protection" society, and named it in honor of Dr. Richebächer. For a limited time, we will waive your membership to the Richebächer Society for a full year...a total of $9,9554 of benefits - free of charge. But you must act by Tuesday, April 21 at 5 PM.