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The Daily Reckoning | Saturday, February 25, 2012
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Joel Bowman, checking in today from Buenos Aires...
Do you hate stories where the playing field is unevenly tilted in favor of those who make the rules? 
Joel Bowman
Does it make your skin crawl to hear of the little guy getting screwed, while the political fat cats laugh all the way to (their own crooked) bank?
Do you despise the state because it can print its own money...trade on insider information...spend loot it stole from you on things you don’t want...and, importantly, arrest anyone who disagrees (without charge or trial) and lock them up in a dark hole?
If you answered “yes” to any of the questions above (or simply felt you should, even though it was kind of scary to admit it), you’re going to hate the essay we’re featuring this weekend. You can imagine, then, how important it must be for us to run it anyway, knowing that it will infuriate you so.
Addison Wiggin has the stage. Enjoy...
[This weekend’s feature essay originally appeared Wednesday 22, 2012]The Daily Reckoning Presents Uncle Sam’s Fire Sale. Minimum Investment: $1 Billion
In my investment letter, Addison Wiggin’s Apogee Advisory, we spend a great deal of time, money and resources looking for new investment ideas that our subscribers can act on independently. Sometimes what we find instead is outrage.
AddisonWiggin
For example, the federal government is about to dump millions of the foreclosed homes at fire-sale prices to hedge funds and private- equity firms with government connections. If you’re an individual investor who might like to get in on the action, forget it! You’re shut out of this deal.
Homeowners who might be interested in buying the foreclosure property next door? Out of luck. And retirees hoping for a return on their money more than 1.8% on a five-year CD find another avenue closed off.
Prior to the calamity of 2008, we might have thought the deal we’re profiling today unthinkable. But now we’re becoming as immune to new instances of blatant cronyism as American babies are to diphtheria.
If you’ve got the hammer for it, we may as well get down to brass tacks: As many as 10,000 properties might be unloaded in a single transaction during the first quarter of 2012 — thanks to a government program so new it doesn’t have a catchy name yet, only the working title “Enterprise/FHA REO Asset Disposition.”
Roger Arnold, chief economist for Pasadena, Calif.-based ALM Advisors, has a different name for it — “the largest transfer of wealth from the public to the private sector.”
As of last September, there were about 800,000 “real estate owned” or REO homes in the United States — homes repossessed and on the market. Close to one-third of these — 250,000 — sit on the books of Fannie Mae, Freddie Mac and the Federal Housing Administration. That is, 250,000 homes are owned by you and me, the US taxpayers.
But that number is about to explode: According to Ken Harney at the real estate industry publication Inman News, “The three agencies face a tsunami-sized shadow inventory that is now heading their way — a combined 1.4 million delinquent loans on their books, at least half of which, they estimate, will end up in foreclosure.”
So now we’re talking that 250,000 number suddenly ballooning to nearly a million. The early-warning waves of the tsunami started lapping at the shore in November, when foreclosure auctions reached a nine-month high. The final numbers might end up even higher: Late- stage delinquencies tallied by Lender Processing Services in January approach 2 million.
Thus, the hypothetical excuse for the fire sale: “Even with heroic efforts,” Harney says, “Fannie, Freddie and FHA won’t be able to handle that level of REO volume using their current systems of individual sales, directed at owner-occupants and small investors.”
Thus, “You and I will not be allowed to participate,” says Roger Arnold of the newprogram. “These [new] investors will come from the private-equity and fund community, Goldman Sachs and its derivatives, as well as foreign sovereign wealth funds that can bring a billion dollars or more to each transaction.
“The US taxpayer will get pennies on the dollar for these homes, and then be allowed to rent them back at market rates.”
The groundwork is being laid right now. During the first week of January, the Federal Reserve issued a white paper on housing: “A government-facilitated REO-to-rental program,” it said, “has the potential to help the housing market and improve loss recoveries on REO portfolios.” Three Fed governors put the word out in speeches the same week.
The big boys can smell the money and they are lining up to play.
Among the players that expect to profit big from this government- sponsored scam are the private firms that already manage properties for the government. The Department of Housing and Urban Development calls them “management and marketing contractors.” Their principal owners and officers tend to consist of former high-ranking officials with HUD, the Treasury, FHA and so on.
There are 20 of these “M&M” firms, according to a list on HUD’s website. On the theory that perhaps you could reclaim some of your tax dollars by investing in these firms — the same theory with which we suggested ITA, the defense and aerospace ETF — we examined whether any of them are publicly traded. None are. Sorry.
No, the only way you’ll be able to make any money off these insider deals will come long after the feast is over and you’re allowed a few crumbs. “Once the privatization has occurred,” one analyst observes, “and the properties are generating rental income for the investors, the initial investors will cash out by forming real estate investment trusts (REITs), real estate operating companies (REOCs) or limited partnerships that will be made available to retail investors.”
Alas, by then, the easy money will have been made...at your expense. Feels pretty good, doesn’t it?
That’s why, increasingly we find ourselves casting our gaze overseas, longing for returns in foreign lands in places where the governments are somewhat less corrupt and the playing field slopes somewhat less directly toward the pockets of crony-capitalists.
Regards,
Addison Wiggin,
for The Daily Reckoning
P.S. Around these pages, it’s almost become passé to speak of imminent economic collapse. After all, we’ve been warning you about bursting bubbles — from the dotcom bust to the subprime meltdown and through to the financial crackup and coming student loan debacle — for over ten years now.
Still, when we made each of these predictions, giving our readers plenty of time to prepare, we were often scoffed at by the mainstream press.
(Maybe you get the same feeling, for example, when you mention the advantages of investing in gold to ever-incredulous family and/or friends...? Well, you know what we’re talking about.)
And yet, our biggest prediction to date, one we call “The Mother of All Bubbles,” seems to fly right over most people’s heads.
We wonder, do they actually believe in “the recovery”? Do they really think things have changed? And, if so, that it has done so for the better? Or are the details in our report simply too much for them to stomach?
Take a look here and let us know what you reckon. World oil production is about to be shaken to its core...
You won’t believe which nation analysts at Wall Street’s biggest banks expect to become the world’s biggest energy producer by 2017 — or the effect it will have on America... our economy... our future...
Click here to see who is set to become the new king of oil — and how you can use the news to go for big profits as early as this MAY!ALSO THIS WEEK in The Daily Reckoning... Borrowing Your Way Out of Debt and Other Normal Abnormalities
Bill Bonner
Buenos Aires, Argentina
Dow up 45 points on Friday. The 10-year T-note right on the 2% yield mark. Almost all the news is good. It looks like recovery is finally here. Or, are we just getting used to a punky economy...where even a little improvement looks like a boom? As far as we know, the US economy is still in a Great Correction...with plenty more correction ahead.
Robotics and Health Care: A New Growth Market
By Ray Blanco
Marco Island, Florida
There are truly exciting developments afoot in the field of robotics. Uncomfortably humanlike Japanese toys aside, we are starting to see more and more applications for robot technology gaining steam in the market. According to the Japan Robotics Association, the consumer robotics market is projected to reach 24 billion this year, and balloon to 66 billion by 2025. I personally think that the long term estimate is a bit pessimistic. Bill Gates is on record for predicting that robots will be as common as computers are today.
A “Nutraceutical” Game-Changer
By Patrick Cox
Marco Island, Florida
A while ago at a party, I was talking to eight or nine friends about the biggest events of the last year. Despite the fact that we are currently suffering a financial crisis of the same magnitude as the Great Depression, half of the people around the table agreed that the discovery of anatabine citrate, Anatabloc, ranked among the most-important developments of the year. Imagine! Not a single one of them mentioned Ashton Kutcher’s break-up with Demi Moore.
By Gold
By Jeff Clark, Casey Research
Have you ever had any doubts about gold? Does it sometimes feel like it should be performing better? Are you concerned about its volatility? Do you worry about how it might perform in the future? Have you ever wondered about its true purchasing power? Maybe you’re nervous about a big drop in price again? I decided to go directly to the source to address these concerns: Gold himself. He put his arm around me and asked me to tell you a few things...Make “Big Oil” pay for your retirement
Oil fat cats got rich on $4 gas.
Now how’d you like to make them pay you back?
This little-known “loophole” let’s you collect up to triple the retirement income most stocks or bonds pay... without touching the stock market... and all while “Big Oil” gets stuck with the bill.
Click here now for all the details.The Weekly Endnote... And now, it’s over to a few readers for some thoughts, ideas and rumors...
First up, this one from “apprentice cynic” L. P. ...
One would think that a county’s financial recovery would demand more than just austerity. Perhaps some official evidence of an improved attitude toward entrepreneurs and (shudder) capitalists. You know, something to get those “animal spirits” referred to by Keynes rolling. I think that phrase is lefty-speak for greed and everyone knows that greed is anathema to socialists; mostly because it provides other competing power centers in the society.
Economists also stimulate my funny bone; they go around pretending that they have a science when in fact they have less of a science than do sociologists and psychologists. They can’t experiment in any controlled fashion and never without consorting with politicians, those very souls of empiricism. Sure they have formulae for compound interest and what not, but absolutely no mathematically supported theory that can actually predict events or outcomes. They are far worse off than meteorologists. It is a crude sociometric which they guilelessly pass off as arcane knowledge. The only group that is further isolated from any coherent rigor is our congress people; do they actually use word-wheels and dart boards to compose legislation other than their own pay raises?
And this, from Reckoner Reckoner R.R. in Tennessee...
I can’t agree with your “enslavement of the young” pitch. When I went to college, my parents didn’t pay my way (the couldn’t afford to). I worked in the summers (started when I was 13 years old) to earn tuition and housing money (stayed in the cheapest place I could find) and worked ‘meal jobs’ for my food. Didn’t borrow on Pell Grants or other loans. Took engineering courses because ‘dirty work’ was where the employment would be (not Social Studies or Ancient English Literature, etc). They didn’t have ‘smart phones’ and iPads then, but I wouldn’t have bought one and don’t have one now. I got by at the lowest cost and didn’t expect any handouts.
Today’s youth could cut expenses by not buying all of the latest “stuff”, living with Mom and Dad while going to the local Junior College for the first two years and working menial jobs and saving money before going to that 4-year school, and then taking courses that will be hiring at graduation. May not be easy courses, but will have some use.
[Ed. You’ve strode an admirable path, to be sure. Were it better trodden, maybe the state of the economy might not be so lamentable. Still, what of the trillions and trillions of dollars in debt future generations will have to pay/suffer the consequences of defaulting on?]
And finally this, from another devoted Reckoner ...
I have just finished reading Bill’s column about Argentina. His description of the economy, the import and export restrictions, the difficulties with currency and so many other (informative) features of his article, remind me of what’s happening in the “Good Ole USofA.”
When I look around me, I see the same kind of stupidity where I live too, not far from Argentina. I retired to Brazil because I could not afford to buy a house in the US. It so happened that when I came to Brazil, the dollar was worth 3.1 reais. I was able to buy a house for cash (less than 20k usd), something I could never do in the US. I bought my car, all the furniture and appliances for the house and we’ve been here for the past ten years.
What I see the Brazilian government doing is making life very difficult for the business owner. There are multiple taxes burdening many of the people who own and operate their businesses, forcing them to raise prices just to keep a bottom line viable enough to eke out a profit to put food on the table for their families. I see store owners driving old cars and wonder why. I know their stores are doing good business. But a look at the government of Dilma and the facts become apparent: these people are being taxed into the ground so the politicians can afford lifestyles in Brazil and other parts of the world that obviously cost a large fortune.
I’ve been in Brazil for almost eleven years. I’ve got the itch and would like to go back to the US. I strongly suspect I will need an income that does not derive from local employment, rather more like from the Internet, since now I’m “too old” for employment in the United States. I have friends in Egypt, Asia and the United States who all tell me similar war stories about their economies. Are we (the human race) ripe for the ‘end’? Are we about to see the rise of the ‘anti-Christ’ to solve all our financial woes and restore order by displacing the current chaos? Woe unto us...
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Reckoners, care to take a stab at that last question? Are we humans nearing the end of our long run? As always, we welcome your thoughts. Email them to the address below and...
..enjoy your weekend.
Cheers,
Joel Bowman
Managing Editor
The Daily Reckoning
Sunday, 26 February 2012
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