The Darkest Storm is About to Descend - You Can't Imagine the Carnage
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Costco and big box grocery chains are getting slammed today. Costco put out a dire outlook.
Costco is as about as defensive a play as one can get, along with the usual suspects of JNJ and PG, etc.
That link about Phoenix foreclosures daveb351 posted above is a great example of exactlywhat I'm speaking to - twice the foreclosures in half the time this year versus last, and least year was bad. In other words, a 400% increase YoY.
It's accelerating.
Who are the brave souls buying bank stocks here? Raise your hands.
If my tone sounds cocky, it's not intended that way. In fact, I never expected things to deteriorate like this. That's why last night was a wake up call for me. Sometimes it really helps to talk to people who are in the thick of it. Headlines and published accounts won't get you this kind of insight.
I just know that if you really give it a shot, you can tie the foreclosure and real estate situation directly into the Starbucks (discretionary) situation, and into the AMEX situation (credit destruction at the most basic consumer level), and now into the gasoline (non-discretionary) build and Costco and Kroger's (non-discretionary) situation.
We are in a deleveraging process that seems bottomless.
With foreclosures and delinquencies still rising, even after all the pain we've already had, and now interest rates on the rise, if you can lay down a sound case for a bullish position, I'd love to hear it.
This all goes back to a simple statement one of my friends made last night that will echo in my head for a long time - 'last year, we were getting about 6,500 residential foreclosure files a month into our office, and barely saw commercial paper defaults; now, we're getting closer to 14,000 (understand that these are delinquencies and the beginning stages of foreclosure proceedings and that I don't know what % make it to ultimate foreclosure), and the retail, office and industrial buildings have started to flood in, now, too.'
I paraphrased, but the numbers are accurate.
Costco is as about as defensive a play as one can get, along with the usual suspects of JNJ and PG, etc.
That link about Phoenix foreclosures daveb351 posted above is a great example of exactlywhat I'm speaking to - twice the foreclosures in half the time this year versus last, and least year was bad. In other words, a 400% increase YoY.
It's accelerating.
Who are the brave souls buying bank stocks here? Raise your hands.
If my tone sounds cocky, it's not intended that way. In fact, I never expected things to deteriorate like this. That's why last night was a wake up call for me. Sometimes it really helps to talk to people who are in the thick of it. Headlines and published accounts won't get you this kind of insight.
I just know that if you really give it a shot, you can tie the foreclosure and real estate situation directly into the Starbucks (discretionary) situation, and into the AMEX situation (credit destruction at the most basic consumer level), and now into the gasoline (non-discretionary) build and Costco and Kroger's (non-discretionary) situation.
We are in a deleveraging process that seems bottomless.
With foreclosures and delinquencies still rising, even after all the pain we've already had, and now interest rates on the rise, if you can lay down a sound case for a bullish position, I'd love to hear it.
This all goes back to a simple statement one of my friends made last night that will echo in my head for a long time - 'last year, we were getting about 6,500 residential foreclosure files a month into our office, and barely saw commercial paper defaults; now, we're getting closer to 14,000 (understand that these are delinquencies and the beginning stages of foreclosure proceedings and that I don't know what % make it to ultimate foreclosure), and the retail, office and industrial buildings have started to flood in, now, too.'
I paraphrased, but the numbers are accurate.
Good chance you are correct. America is possibly facing something unique in its history... CREDIT EXHAUSTION.
Historically, since the creation of the Federal Reserve in 1913, economic expansions and contractions have been orchestrated by the Fed. THIS time is/may be different... the Fed has kept the credit "pedal-to-the-metal" (and LIED ABOUT THE CONSEQUENCES) since 2003, and it's possible/likely the "borrow and spend" phenomenon has run until the "house of cards has become exhausted and collapsed".
America has never faced this before. We don't know the consequences for certain... could be worse than '29-'33.
Housing is really what is going to be hit with the darkest storm.
The boomers will be selling to retire, pulling out equity or just to save utility money and effort of maintaing a large single family. People with second homes will sell due to job losses and underperformance of the stock market (will mean they need to save more to fund retirement) and to pay for the massive increase in taxes that is coming. Young families will have to save for many years before they have the down payment to qualify to buy a house and even then why would they when they can rent for much less than what they would pay in mortgage and taxes especially in an environment where home prices are decreasing or not appreciating and their job is not secure (meaning they may have to move which makes renting more attractive).
The job losses coming are what will be the wake up call and the final shoe to drop that no one is really expecting, and not just from the financial industry but across the board. We are a nation of house poor tapped out consumers riddled with debt, so much so that even Costco is feeling it. Take AXP, Costco, Starbucks, and the housing reports (mortgage aps down again in the middle of what is supposed to be the summer buying season with all those bargains out there) and the real picture of the economy is fair clear and eventually the market will price that reality in.
The boomers will be selling to retire, pulling out equity or just to save utility money and effort of maintaing a large single family. People with second homes will sell due to job losses and underperformance of the stock market (will mean they need to save more to fund retirement) and to pay for the massive increase in taxes that is coming. Young families will have to save for many years before they have the down payment to qualify to buy a house and even then why would they when they can rent for much less than what they would pay in mortgage and taxes especially in an environment where home prices are decreasing or not appreciating and their job is not secure (meaning they may have to move which makes renting more attractive).
The job losses coming are what will be the wake up call and the final shoe to drop that no one is really expecting, and not just from the financial industry but across the board. We are a nation of house poor tapped out consumers riddled with debt, so much so that even Costco is feeling it. Take AXP, Costco, Starbucks, and the housing reports (mortgage aps down again in the middle of what is supposed to be the summer buying season with all those bargains out there) and the real picture of the economy is fair clear and eventually the market will price that reality in.
And that is why we have a lot further to go before a bottom is found. Cheap money unqualified buyers drove prices in to bubble territory but unfortunately the homesteaders bought in to it and started spending the bubble equity too on TVs vacations and stopped saving for retirement. Maybe the specs are making up most of current foreclosures but they have trapped a lot of the homsteaders.
82-year-old Canadian billionaire Stephen Jarislowsky seems to agree with you:
"Stephen Jarislowsky has been through a lot of ups and downs in more than 50 years in the investment business, but he says the current financial crisis is the worst he's seen since he was a small boy."
http://www.canada.com/montrealgazet....html?id=5d8bcbab-9c10-4683-9b74-c4222993e608
Exactly.
Not only that, but when the banks take back all this toxic waste, whether it was a primary home, or a leftover spec house that some builder built, or an investment, or when the banks take back acreage that was 'going to be developed,' or vacant lots that are already developed, what are they going to do with them?
They have to pay taxes and insurance and maintenance costs - and there's no buyers, even at fire sale prices.
And as the banks have these income draining assets back on their books, rather than the defaulted paper, how do they value it?
All this does is reduce their incentive to loan new money, because they're trying to conserve capital to deal with these escalating expenses, they don't trust any borrowers, and it all becomes part of a big, vicious circle.
