The mainstream media likes to lambast the Blogosphere for being the domain of rumors and konspiracy theories. As if they were the gatekeepers of the "truth" and we can't figure things out for ourselves.
One example of this is the recent, massive stock market rally since March. Two months ago I called this a suckers rally. Like many other bloggers I pointed out that corporate earnings did not justify it and that the stocks rallying the hardest were the worst of the worst. Like many other bloggers I suggested that the banks were using taxpayer bailout money to speculate on risky stocks.
This was considered crazy talk at the time. That's why today's press release is so refreshing.
September 24, 2009 - Moonraker Fund Management, the independent investment boutique, is concerned that banks may have been using their bailout money to buy equities, helping to fuel a rally that is vulnerable to a major correction if they consequently sell in thinly traded markets.
...
Jeremy Charlesworth, Chief Investment Officer of Moonraker and manager of the Moonraker Commodities Fund and Global Opportunities Fund, commented: "Little of the bailout money given to banks seems to have been passed on to businesses or consumers. But it must have gone somewhere and it might have gone to the proprietary desks of the banks to punt the markets. Given all the calls for more transparency, it would be good if the banks could clarify this.
"The banks have every right to use the money they borrow in any way they choose. But it would be good to know how much of the bailout money has been used to buy equities. Clearly, someone has been buying, and given that it hasn’t been ordinary investors and the institutions that does just leave the banks.
"The banks’ balance sheets will certainly have benefited from their equity holdings. If they could sell these investments into a rising market then they would be in a better position to repay their debts. But there will be a problem if the public and institutions do not join the rally and the banks have to sell equities into a vacuum."
Private clients aren't buying stocks because stock funds are registering net outflows. Corporate insiders aren't buying, and are in fact selling at record levels (something that should indicate a coming downturn). Corporate buybacks are at their lowest levels since 1998. In fact, total volume of the stock market is incredibly weak.
Given all that, and the timing with the massive Wall Street bailouts, is it really outrageous to believe that all of your taxpayer money was used by the big banks so they could make larger and more risky bets in the stock market?
Isn't that why we bailed out the Wall Street banks in the first place? Well, unless the sheeple are willing to jump back into the stock market and take those risky and overpriced assets off the hands of the bankers it is likely that the banks will be asking for another taxpayer bailout.
News from the housing bust
There are a number of reasons to worry about the current housing market. The housing affordability rate actually got worse last year despite collapsing home prices. Home mortgage obligations are still historically high.
However, the biggest concern is the massive overhang of 7 million houses of shadow inventory.
(Bloomberg) -- The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.
The "huge shadow inventory," reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts led by Laurie Goodman wrote today in a report. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales, they said.
It isn't just Amherts saying this. Insiders on both coasts are expecting it.
"There's going to be a flood [of bank-owned homes] listed for sale at some point," says John Burns, a real-estate consultant based in Irvine, Calif.
...
"We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running" for a loan modification or other alternatives, says a Bank of America Corp. spokeswoman. Foreclosure sales had dropped to "abnormally low" levels in response to government efforts to stem foreclosures, she adds.
We aren't talking about people in danger of falling behind on their mortgages and the banks waiting to pounce on them like vultures. We are talking about people who are at least three months behind on their mortgages and the banks haven't even started the foreclosure proceedings.
In some cases we are talking about people living in houses for a full year without paying their mortgages and the banks still haven't moved to foreclose on them.
As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages.
Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier."
The cure rate for mortgages like these are next to zero. These people will be foreclosed on. It's only a matter of time.
Adding to this foreclosure wave is the coming end to massive federal subsidies for the real estate market, and an intensifying credit crunch.
It's hard to see how the modest seasonal bump in housing will have any sustainable follow-through.