I believe the investment potential here could be excellent. Between January and March this year I bought puts on some builders exposed to bubble zones which are up about 80%....but the real leverage may be in the 09 puts on some financial institutions.

"I believe that the scale of total challenge we face is more like April 1861 than any other period since then," Gingrich says. He goes on to explain that April 1861 was the month Fort Sumter was fired upon, setting off a chain of events--from the Civil War to the construction of the transcontinental railroad to the printing of paper currency--that no one at the time foresaw. "You go back through the cold war, the Second World War, the Great Depression, the First World War--each of those were large, singular, focusable events. In some cases, they were excruciating, but they were containable," he says. "We're going to be hit over the next 15 or 20 years with so many different things simultaneously that the total number of solutions we have to come up with is going to stretch our capacity as a society to talk to itself well enough to actually reach agreement to get something done."

Most of the sales that were pending in early June took place in May and closed escrow in June. Right? No wonder that the median price for escrows that closed in June was nearly identical to the Listing Price of Sales Pending in early June. But, look what has happened to the median Listing Price of Sales Pending in the second half of July, to date? They are down $62-70K, about 8%, from the peak, in just 1½ months. These Sales Pending will close escrow in August and would be reported in late September. There is 2.5 months of lag in the data that I monitor and the reports.

Another very important reason is that inventory has been swelling every week, non-stop. Active Listings are up from 2494 to 3521 in the past three months (the number was 1300-1500 during July-August 2004). Currently, 100 additional listings are added every week. All of this swelling inventory is primarily due to declining sales volume.

Whenever I have a (real estate) question I cannot get answered, I turn to Bob.

So I asked him, Why is the median rising, when each individual home is selling for less? Actually, most San Diego homes are back at 2004 prices.

Bob told me that the under $400K buyer is squeezed out due to rising prices and higher interest rates. The high end is holding up a little better, because the ripple effect has not yet made it to the high end, and the low end has weakened MORE than the high end.

Last year, the +$1million home was 8.5% of sales. This year it is 10%. This is skewing UP the distribution of homes sold, raising the median, although each home, including the high end homes, are selling for 10-15% less today than last year.

We are selling proportionally MORE of the expensive homes, and the median tells us only about the MIX of homes sold.

It does not tell us about the value of each home. The $1.1 mil house was worth $1.5 mil in 2004, so it has also gone down in value.

If you want to know how each house has held up, you have to use the Case-Shiller index, or the OFHEO housing price index. Both track the SAME house over time, giving us the change in valuation of each house instead of the change in the MIX of homes sold.

Another thing that hit me, when Bob said that we are on track to sell 30K homes this year in San Diego. SD has 1.1 million homeowners. That means 1 buyer for every 8 sellers. But these 30K homes set the price for the other 1 million homes. So all you need is a very small percentage of homeowners who are motivated, to bring down the entire market.

One of the major issues for our market is what does the future demand look like, and only time will tell. I did a rough check on July to date (July 9) to see where it stands, I debated about putting this in this writing because the numbers are scary and they will close somewhat by the end of the month. I decided to put it in so that we can see the mountain ahead to maintain some level of reasonable demand. The first 9 days of July have 303 homes sold for an average price of $559,577 and an average size of 1781 sq ft; the first 9 days of July 2005 had sales of 933 and an average price of $629,168 and an average size of 1749 sq ft. Last July's 933 sales represented 25% of the month's sales, if that were to hold this year, well suffice it to say that would be a disaster. I think this July will stay in the 30% to 35% down from last year region and that would put July sales at about 2,700 homes sold, keeping us a path to about 30,000 home sold for the year, down about 30% from last year.

Markets can not sustain 30% declines in demand over a period of time and not have price erosion. Here is a trend to consider; sales in the fourth quarter of 2005 was down 10% from prior year, sales of the first quarter 2006 was down 20% from prior year and the second quarter of 2006 was down 30% from last year third quarter of 2006 ???, anybody's guess. Another issue that will impact price pressures is that about 30% of our listings are vacant and heaven help the Fed continue to raise interest rates. Help comes in the form of something that will increase demand or reduce inventory.

I believe the investment potential here could be excellent. Between January and March this year I bought puts on some builders exposed to bubble zones which are up about 80%....but the real leverage may be in the 09 puts on some financial institutions.

Attached is a picture of a covered covered wagon with a functioning cistern. It should be on the national registry in my opinion. 10 kids were raised in it according to my aunt, and a bachelor lived in it till the 50's.

A total of 9,892 new and resale houses and condos were sold in the nine-county region last month. That was up 9.1 percent from 9,064 for May, and down 24.0 percent from 13,014 for June last year, according to DataQuick Information Systems.

While the year-over-year decline was the fifteenth in a row, last month's sales count was the highest since October last year when 10,508 homes were sold. The average June sales count since 1988 is 9,840.

The median price paid for a Bay Area home was $644,000 last month, the third record in a row. That was up 2.1 percent from May's $631,000, and up 5.6 percent from $610,000 for June a year ago. Last month's year-over-year increase was the lowest since May 2003 when the $427,000 median was up 3.4 percent.

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $3,183 in June. That was up from $3,091 in May, and up from $2,651 for June a year ago. Adjusted for inflation, mortgage payments are 25 percent higher than they were at the peak of the prior cycle sixteen years ago.

Indicators of market distress are still largely absent. The use of adjustable-rate mortgages has decreased the last half year. Foreclosure rates are coming up from last year's low point, but are still below normal levels. Down payment sizes are stable and there have been no significant shifts in market mix, DataQuick reported.

In Los Angeles, the cost of home owning has doubled over the past five years, rising from 31 percent to 55 percent of median income. That means only 2 percent of the homes sold there are affordable by families earning the area's median income of about $47,000 a year. To qualify for conventional financing of a median-price home of $500,000, with a 20 percent down payment, buyers would need an annual income of about $120,000. In New York, only 6 percent of those who earn a median income can afford to buy a median-price home. In San Francisco, the number is 7 percent.

It's hard to make heads or tails of the current debate over Social Security. Sometimes it seems like you just have to find an editorial you like the sound of and trust it. After all, how could you know anything personally about the future of Social Security? But it turns out, you can do a bit of research on your own. The figures involved are not a secret!

The best reference for this kind of thing is put out by the U.S. Census Bureau, and it's called "The Statistical Abstract of the United States." Find it online at Abstract of the U.S..

Since the debate is all about handling the Baby Boom retirees, start with the age of Americans. Here is the 2003 age distribution:

59 yrs. old 2,788,000
58 yrs. old 2,785,000
57 yrs. old 3,064,000
56 yrs. old 3,495,000
55 yrs. old 3,662,000


The people 57 years old in 2003 will be 65 in 2011. So in four years, 2010 to 2013, the number of new retirees per year will jump by 874,000 people. That will be when the expense of Social Security (and Medicare!) suddenly takes a jump. Trust funds and Social Security taxes make no difference -- it's all one budget.

In 2002, there were 34.7 million elderly on Medicare, for a total expenditure of $125.3 billion, or $3600 per retiree. Social Security was $472.6 billion in 2002, so figure $13,600 per person.

Adding 8% medical inflation from now until then, and 3% Social Security inflation (both low estimates), you get this estimate:

In 2011, the new crop of retirees adds $7 billion over what a 2009 sized group would have required. But the next year adds another large group and so on:

2012 $25.6 billion excess over two 2009-sized groups
2013 $50.5 billion
2014 $73.1 billion
2015 $99.7 billion
2016 $125.7 billion
2017 $156.3 billion
2018 $189.6 billion


Now of course, retirees are also dying, so you might think this is only half the story. However, the people who die are, on the average, 15 years older than the new retirees. So when the number of retirees surges in 2011, the number of deaths is still from the pre-boomer group, and stays roughly constant.

In other words, Social Security and Medicare outlays continue to increase for 15 years, until the number of retirees dying rises to match the number of new retirees.

Also realize that since the U.S. population is growing, the number of retirees would grow, even if there had been no baby boom. So the table above is not a total cost of Social Security and Medicare. It's the additional cost over what the baseline 2009 group would have required, with inflation added.

The debate you read will be about when Social Security expenses exceed taxes (in 2018), or when the "trust fund" is exhausted (in 2042.) Private accounts are supposed to relieve these problems. But my point here is that the budget starts to increase as soon as the number of retirees increases. At that point, the government has to either raise taxes, cut other programs, cut Social Security and Medicare, or (most likely) borrow more money.

This will happen starting in 2011, not in "our children's future." This is too soon for private accounts to have any effect on the solvency of Social Security. As far as I know, nothing has been proposed to deal with Medicare. The recent Medicare drug benefit just makes things worse.

"We're going to be hit over the next 15 or 20 years with so many different things simultaneously that the total number of solutions we have to come up with is going to stretch our capacity as a society to talk to itself well enough to actually reach agreement to get something done."

"I believe that the scale of total challenge we face is more like April 1861 than any other period since then," Gingrich says. He goes on to explain that April 1861 was the month Fort Sumter was fired upon, setting off a chain of events--from the Civil War to the construction of the transcontinental railroad to the printing of paper currency--that no one at the time foresaw. "You go back through the cold war, the Second World War, the Great Depression, the First World War--each of those were large, singular, focusable events. In some cases, they were excruciating, but they were containable," he says. "We're going to be hit over the next 15 or 20 years with so many different things simultaneously that the total number of solutions we have to come up with is going to stretch our capacity as a society to talk to itself well enough to actually reach agreement to get something done."

For Gingrich, the deeper problem, as he might put it, is not so much the size of the challenge, but that no one is prepared to face it--especially not President Bush. He adds, "I think the administration is trapped in normalcy." And that, in Gingrich's view, is a tragedy, because normal leaders are not what these times call for. "The genius of guys like Lincoln and Reagan and FDR--the great communicator leaders--is that they're actually educators, so they understand when they use a phrase that they have to explain it, because, by definition, you won't understand it or they wouldn't need to be using it," he says. "I think Bush is like a lot of managers who think, if they repeat it, it's your problem to figure it out."

Now, as the region teeters on the brink of a new and potentially more violent cataclysm, it is important to revisit the lessons of the Six Day War, a conflict that few Middle Eastern countries wanted and none foresaw.

And so, suddenly and unexpectedly, a regional war erupted that the principal combatants-- Israel, Egypt, and Jordan--neither desired nor anticipated. The lesson: Local conflicts in the Middle East can quickly spin out of control and spiral into a regional conflagration.

Iran, OPEC's second biggest producer, supplies the world with more than 2.4 million barrels per day (bpd), making it the fourth biggest exporter. Traders say a loss of this amount would be hard to replace as, except for about 2 million bpd of spare crude oil capacity in top exporter Saudi Arabia, OPEC is pumping flat out. Syria exports only about 200,000 bpd of oil.

"You speak treason!"

"Fluently."

Errol Flynn's witty reply comes from Robin Hood, but it also captures the soul of his pirate classic, Captain Blood.

"Chinese authorities are now scrambling to regain control over a runaway economy," Morgan Stanley economist Stephen Roach wrote in a recent report. "China needs a more serious policy tightening."

Construction projects such as the forests of cranes on Changsha's horizon are just the most visible evidence of a nationwide investment binge that raised new spending on construction and factory equipment to $318 billion by the end of May, up 30 percent from the same period of 2005.

Such investments are forecast to exceed $1.3 trillion this year, nearly half of China's GDP.

To finance that spending, China's big commercial banks, their already fat cash balances swollen by government bailouts and recent multibillion-dollar initial public offerings, issued new loans worth $267.5 billion in the first half of this year.

The worry is that too much of the money is going into redundant or ultimately unprofitable investments, risking a rebound in bad loans and possibly a financial crisis. With China now an engine in the global economy and international investors joining in on the Chinese investment binge, a hard landing could jolt world markets.

Apart from the risks in the real estate market, economists note surging manufacturing capacity in already glutted industries.

China's auto industry has enough capacity to make 8 million units a year, far above the 5.7 million in sales in 2005. Supplies of about 70 percent of all consumer goods exceed demand, according to the Ministry of Commerce-- factors that contributed to a tripling in China's exports in the past five years.

These figures show that trade is now a precariously excessive portion of Chinese GDP. And without a trade surplus with the US, China would face a global trade deficit of about 6.25% of GDP, more than the United States' 5.7%.

China's addiction to trade: With any addiction, initial euphoria soon turns to agony. Chinese per capita GDP was $1,231 for 2005, while the country's per capita foreign-trade volume was $1,000. Take away foreign trade, and Chinese per capita GDP would be $231, or 63 cents a day. And that number is per capita GDP, not per capita income, which is usually lower.

In 2005, the per capita annual income of Chinese urban residents was 10,493 yuan, or $1,294 at the official exchange rate of 8.11 yuan to a dollar. The per capita annual income of rural residents was 3,255 yuan, or $401. In fact, in the rural interior, non-trade-related per capita GDP in 2005 was actually below overall per capita income, meaning that rural per capita income in region with no export trade had to be subsidized to the tune of $170 per capita, the gap between $401 and $231, or 47 cents a day.

The global poverty line is set at $2 per day, substantially higher than China's non-trade-related per capita GDP of 63 cents per day. Chinese policy of export-dependent growth is causing mounting social unrest with serious political implications, which the government is just beginning to acknowledge.

Obviously, China is much more trade-dependent than the US, and it does not take much analysis to see that the US commands much more market power in trade negotiation with China.

The fault of GDP as a gauge for growth is plainly displayed in China, where double-digit GDP growth has given the country a booming economy on paper but one with widening income disparity that keeps the majority in poverty, irreversible environmental deterioration, rising moral apathy, systemic official corruption and spreading social unrest. It is hardly a picture that fits the world's second-largest creditor nation.

Dollar hegemony has not done better for the US, where the Gini index for 2005 was 0.41. A Gini index above 0.4 is considered socially destabilizing and economically inefficient.

China's foreign reserves have continued to rise, passing $800 billion by the end of 2005, and may rise to $900 billion or $1 trillion by the end of 2006. Between 2000 and 2005, China's foreign reserves increased by more than $600 billion. But this is not surplus national wealth, but a reflection of deficiency in social-security funding caused by market reform.

Most US journalists, and almost all politicians, line up with the dollar bears in fixating on the trade deficit rather than on the capital surplus. And they blame that deficit on China as the newest scapegoat that carries a great deal of residual hostility from Cold War days and even from century-old racial prejudice.

According to the China-bashers, the US is a victim of Chinese mercantilism, notwithstanding that mercantilism involve the quest for gold, not fiat currencies. As they tell it, China has kept its currency undervalued to promote export-led growth. To back this assertion they point to China's rapid buildup of foreign-exchange reserves, which are really loans to the US to balance its trade deficits, notwithstanding the fact that the exchange rate has been in effect for more than a decade, that China withstood temptation to devalue the yuan after the 1997 Asian financial crisis, and that fixed exchange rates were a US idea at Bretton Woods when the United States was a creditor nation.

A wholesale opening of China's financial sector as demanded by the US would require China to cure the massive non-performing-loan problem in the Chinese banking system as defined by the Bank of International Settlement (BIS). This is a structural problem that arose from shifting from a regime of national banking to central banking. This task is ultimately going to cost upwards of $1 trillion (see China: Banking on bank reform, June 1, 2002). Making the yuan freely convertible will require upwards of $500 billion to ward off speculation. Add it all up, and China needs foreign reserves on the scale of $2 trillion to implement financial liberalization. It is less than halfway there and will not reach the necessary target if current US policy on China prevails.

If the Chinese economy hits a stone wall, as it will when the US debt bubble bursts and Chinese export to the US falls drastically, Chinese sovereign debt will lose credit rating, causing yuan interest rates to rise, causing more hot money into China, causing the PBoC to buy more US Treasuries, forcing dollar interest rates to fall and more hot money to rush into China, turning the process into a financial tornado that will make the 1997 Asian financial crisis look like a harmless April shower.

This happened to Japan, but with foreign trade constituting only 18% of GDP in 2003, Japan was able to contain the deflation domestically. Still, the impact of protracted Japanese deflation on the global economy was substantial. With China, where foreign trade hovers above 81% of GDP, with an economy already highly concentrated on the coastal regions and unbalanced with little breadth and depth, a financial crisis will transmit beyond its borders quickly. This is the real danger for dollar hegemony.

According to the Office of Federal Housing Enterprise Oversight, the volume of ARMs tripled between 2001 and 2004, from $304 billion to $985 billion in 2004. At the end of 2004, there were about $1.4 trillion in ARMs outstanding. That figure is likely significantly higher today, since the ARMs accounted for about 31 percent of the $2.9 trillion in mortgages issued in 2005, according to the Mortgage Bankers Association. For every 100 basis points (i.e., 1 percent) mortgage rates rise, holders of adjustable of ARMs will owe an extra $14 billion per year in interest.

Re-Fi's Hit a 15-Year High: A greater proportion of mortgage refinancers tapped their home equity for cash in the first three months of this year than in any other quarter in the past 15 years, according to an analysis released yesterday.

About 88 percent of people refinancing their homes took out loans for at least 5 percent more than their original balances, according to the latest quarterly review of loans owned by Freddie Mac.

I'm an engineer by trade, it's all about the numbers. If calories in > calories out, then the rest goes into the spare tire. I don't get these people that binge at the holidays, and then try to eat celery and tofu in January. I have a simple diet. Continue eating what you're eating - just eat 1/3 to 1/4 less. Instead of 4 slices of pizza, eat three. Instead of the medium Quiznos sandwich, get a large and split it over two days. One cup of juice and one cup of water instead of the refill. Easy, simple, and not extreme....

This article is spot on although I'd argue a bit with point #4: I think intelligent supplementation is very important to good health.

However, I'm not writing to quibble but to pass along a couple of interesting tricks. Note that I've lost 20 lbs in the last year basically doing exactly what you've recommended (and we're about the same age). Additionally, I read somewhere that extended exercise increases the metabolism way up over the basal state which then over-compensates coming down when the exercise is finished, returning to a lower level for quite some time and then gradually recovering to the basal state. Two steps forward, one and a half steps back.

So this doctor (sorry, lost the source so you should do your own confirmation) recommends just a few minutes of some metabolism raising activity every 1/2 hour to an hour, thus keeping the metabolism at a somewhat elevated state for a much longer period of time. One step forward and stay there. Any activity will do, stretching, a few calisthenics etc. Over time the small but steady increase results in gradual weight loss - which is the healthy way to do it. Along these lines you may want to visit the quatrofitness website. This sites lists many BRUTAL 4 minute routines.

The second trick is to sip a little ice water often throughout the day. The few calories required to raise the cold water to normal internal temperature over days and weeks provides a steady little metabolism boost.

Now, not to beg an argument on your point 4, I also supplement before exercise with L-arginine and L-ornithine, both are significant metabolism boosters. Please do your own research, but I have been using these supplements with excellent effect. Everyone has some anecdotal story about their little health secret but I've done some due diligence and read several medical studies that supports this notion.

All in all thank you for another excellent article.

They come in the door very quiet-cranky. Tita looks bent, and so does Alex. At first I figure they just had some New York fun like a parking ticket or an argument with some gorgon over a shopping cart, but the way they plop the full grocery bags down on the counter tells me they're bent at each other.

Tita's moving fast, the way you do when you're torqued, and her long batik skirt is going swish-swish as she darts around the kitchen, putting stuff away. There's a trickle of sweat running down her neck into her white blouse, and her face is flushed from climbing the three flights of steps with the heavy grocery bags.

Alex, of course, doesn't even look warm, except in his eyes. Hefting two bags, even in this heat, hardly lights the furnace; his blue tanktop is still neatly tucked into his shorts, and his thick arms are just moist with humidity, not from any effort.

He's the opposite of Tita in the way he gets torqued, too. He's moving very deliberately, almost slo-mo, and when I see that, a big knot clinches up in my gut.

I'm not too crazy about the silent treatment, you know, when unsaid stuff is dripping off the walls like gooey thunderstorm sweat, so I go in to help unpack the food and ask Alex, "What's with the salty air in here?"

He has that glazed-steel look in his eyes and he just shrugs. "Guess I'm not Hawaiian enough anymore." Before I can even register how this makes me feel, Tita jumps in and says, "That's not what I said." From her tone and dark eyes, I can tell she's not so much bent as hurt.

Now Alex is proud of being Hawaiian in the same way he's proud of his body and mind, and he's not proud of it the way you're not proud of breathing oxygen.

He opens a bag of apricots and carefully puts them in an old-timey blue ceramic bowl on the counter, one at a time, and I'm thinking, well, that's it, another day shot to hell, when he turns to me and just lets loose.

"So Kamehameha gives his land and women to the haoles for guns. For what? To shoot the fricking haoles? No! To kill some Hawaiians! And I'm supposed to respect that?"

I've never heard his full-rant Pidgin before, and I'm amazed at how hot and smooth it is. It's not the sing-songy kind when he's talking to me like I'm three, and it's not the short bursts when he's downright bent, either.

Tita tries to say something, but he just bulldozes ahead.

"And when the ali'i made the maka'ainana cut down all the sandalwood so they can sell it to the Chinese—every frickin' tree, Daz, you know how hard it would be to get every last one out of the Koolaus?—then what, I'm supposed to be proud of that?"

Alex usually ignores what people say—yah, especially me—and just watches what they do, so this hot speech is blowing me down.

"I didn't say that," Tita says. "I agree with you."

He ignores her and says, "Then there's some defective religion where you get adiosed if the fricking ali'i's shadow touches you, and women can't eat bananas, and I'm supposed to preserve that? What the hell for?"

"I didn't say that," Tita says all defensively, and he finally looks at her.

"No, but it's the same thing," he says, and then mimics her. "'Preserve our culture.' Who the hell lost it? The fricking ali'i were so stupid and greedy, anybody could have conquered us."

Tita looks at me and lets out a huge sigh. "All I said was, the language and everything that goes with it will be lost if we don't preserve it."

"Hey, you can preserve whatever you want," Alex tells her. "Just don't tell me how for be Hawaiian."

"That's the last thing I would do," she says, and now she's starting to flame up herself.

"What really fries my ass," he tells her, "is that you crawl out of the crabpot and marry some haole, and then 'cause you study Hawaiian, you get to tell me what for do?"

He frags her off with a disgusted snort, and Tita turns to me and says, "I don't know what set him off, but it's not me."

Alex isn't done yet, and he tells her, "Hey, if Daz or some Japanese guy wants to learn hula, you gonna tell him 'no, because you're not Hawaiian'? What if he's one-thirty-second Hawaiian? Or one-sixty-fourth? Then it's okay for him to be kumu? What the hell difference does it make?"

I know Alex has always racked up big numbers in history, the Boxer Rebellion, World War One, you name it, but I never heard him romp through Hawaiian stuff like this. So I ask Tita, as calmly as I can, "Well then, what did you say?"

She looks at Alex and tells me, "All I was trying to do was encourage him to look into his own culture."

Alex shakes his head, really redlined, and says, "Yeah, your idea of what is what. It's like the fricking Thought Control Squad around here. You ever thought that maybe we can make up our own minds?"

"Jesus," she says. "It was just a comment. I didn't expect to unleash a tirade."

He crunches up the paper bag the apricots came in and tosses it into their recycling box. "I'll tell you what's really happening," he tells us. "Making up your own mind always makes you the rebel."

Nobody says anything, and after a few seconds of looking intense he tells me, "I see it, brah. I know. The more people feel lost, the more they grab onto some bogus religion or whatever, and the more they want you to believe the same crap they do."

"Look, Alex," Tita tells him, "I'm all for you thinking and doing whatever you want. I'm sorry if I came across as a know-it-all."

This is the first thing she's said that really punches through to him, and the steam in the room finally cools off.

I could care less what somebody has to say about my culture—I mean, what does that even mean, seeing as how my family started because the Spanish friars were humping Indian girls like bunnies?

(from the Star-Tribune) "Adjustable-rate mortgages now account for a quarter of the more than $8.5 trillion in outstanding loans, according to the Mortgage Bankers Association of America. "We're talking about potentially 2 to 3 trillion dollars of mortgages being these adjustable rates that are going to come due to reset in the next 18 to 24 months," said Rick Sharga, vice president of RealtyTrac Inc., a database on foreclosure properties."


"Forty percent of all home sales in 2005 were second homes - investment properties and vacation homes - compared to about 9 percent 10 years ago," NAR economist Lereah said.

David Rosenberg, chief North American economist for Merrill Lynch & Co., said: "The mortgage market today is bigger than the government bond market; housing is valued at double the level of household equities on the household balance sheet," he says. "Never before has housing come to permeate the economic and social fabric to the extent that it does today. So that's why, if you ask me, what the No. 1 risk is to the U.S. economy: It is going to be what the house-price landscape is, what happens to house prices."

A full 29% of people who took out mortgages or refinanced in 2005 have no equity or negative equity in their homes, according to Christopher Cagan of First American Real Estate Solutions, a data provider. That's a shocking figure, compared with 10.6% of people who took out mortgages in 2004.

Home building has accounted for about a quarter of the jobs created since the 2001 recession. In the past five years, housing has also provided about $2.5 trillion in cash for owners refinancing through home equity loans ($751 billion last year, twice the high point reached in the late 1980s).

A greater proportion of mortgage refinancers tapped their home equity for cash in the first three months of this year than in any other quarter in the past 15 years, according to an analysis released yesterday.

About 88 percent of people refinancing their homes took out loans for at least 5 percent more than their original balances, according to the latest quarterly review of loans owned by Freddie Mac. "It's a homeownership economy where people don't really own their homes."

The cost of owning a home in New York jumped from 25 percent of median income in 2000 to 38 percent today. In Miami, the numbers are 21 percent and 43 percent. In Los Angeles, the cost of home owning has doubled over the past five years, rising from 31 percent to 55 percent of median income. That means only 2 percent of the homes sold there are affordable by families earning the area's median income of about $47,000 a year.

To qualify for conventional financing of a median-price home of $500,000, with a 20 percent down payment, buyers would need an annual income of about $120,000. In New York, only 6 percent of those who earn a median income can afford to buy a median-price home. In San Francisco, the number is 7 percent. For 30 years the ratio of housing price to income hovered around 4 to 1, but in the past five years it doubled, to about 8 to 1, as the cost of new homes increased so much faster than compensation.

The number of obese Americans has gone from 23 million in 1980 to more than 60 million today, and is forecast to rise by another 28 million by 2013. People making more than $60,000 are the fastest-growing segment of the obese population.

These two things are the most critical in my view IF the government allows amortization of goodwill there could be some of it that could seep into the capital ratios and make it possible for banks to be way more leveraged. Take any major bank and you could see that their leverage has been consistently going up.

"Basel II, which will impose a vastly more comprehensive capital framework on the largest U.S. depository institutions once it takes effect sometime in 2008, is bearing down on the country's banking industry like a heavily ladened coal train bound for hell and back." excerpt from this article whom will choose Basil II. Also, check stories on Basel in general.

I get a feeling those whom are itching for Basel II will be the first large banks to fail in the new century. It basically creates more disclosure to make it easier to consolidate the industry into extremely large institutions in my view. Federal Reserve White Paper and Federal Reserve, Potential Impact of Basel II. Page2 paragraph2 is below:

"The greater risk sensitivity of Basel II is expected to lower the regulatory capital requirements on the credit risk of most residential first-lien mortgages, although it might raise them on the most risky mortgages. Those depositories that remain under the current capital regime, which imposes a four percent regulatory capital charge on all residential mortgages regardless of risk, are thus expected to face higher regulatory capital requirements on their residential mortgage portfolios than would Basel II adopters. The difference in capital treatment has been criticized by some as placing those who do not adopt Basel II at a competitive disadvantage in the residential mortgage credit market."

Look at the exposure Bank of America has to mortgages. If you would like to see something unbelievable go to page 17 also if you look them up notice the residential and home equity net loss ratios at .002% and .006% respectively. I don't believe them, this simply looks insane. Even their proceeds from forclosed properties don't seem realistic to me. I just don't believe those numbers.

At least Washington Mutual's numbers are somewhat realistic although there is an extreme peculiarity about them. If you notice on page 1 provision for loan and lease losses is $82 million. Then scroll down and see that they make $985 million in net income. Seems fine right? Then you go to page 2 and you see Allowance for loan and lease losses at 1.642 billion and foreclosures of 300 million or so . Then you go to page 50 or 51. My guess is what they are doing is basically shifting the crap around by moving nonaccruing loans into securitizations, taking a loss on that instead of lowering their net charge off rate. Then they sell them to subsidiaries while funding them and the subsidiaries sell them the loans back with a new 90day clock or another hit on securities to stretch out the losses and make them seem smaller. But I could be totally wrong, all of this is my opinion anyways.

The thoughts for my last paragraph came from Washington Mutual's 10-q (link above)page 50-53. Read begining of page 50 and read footnotes especially footnote 2 and right above page 53.

I went back to ababj.com and read some more and in the end it boils down to something like this. Right now it is very easy/cheap to start a bank in US. All you have to do is start a credit union and then mutualize afterwards de-mutualize and go commercial and/or public. Would take about five or less years because you have to wait for a year and two years at certain points. In Western Europe it would be much tougher and/or impossible for someone lacking funds in the millions. This keeps the US banking system filled with competition which springs up when the market conditions are descent. In Europe there is usually a banking oligapoly for each country and due to lack of competition they do not need large equity. In essense they are just making it so that their equity requirements would be the same be it Europe or elsewhere that is why the Basel II standard is pushed worldwide.

While we are going through boom and bust cycles of growth and recessions they are more mellow and aren't really prepared equity wise to meet this risk even though basel II requirments make it seem like they are. While they would profit immensely from having same capital requirments world wide ergo their undercapitalized banks would be able to buy overcapitalized banks because it would be cheap for them capital wise they would still come out ahead. Expansion wise it would be very appealing. Ergo a bank with 5% capital to assets buying one with 8% capital to assets is still having its capital to assets increase as long as they pay lower than 3% in combined capital to assets for the aquisition ( I think this is extremely simplified but still makes some sense). Also mature economies have lower discounts on their assets compared to faster growing counterparts in emerging markets.

Here is an old BusinessWeek article but you could extrapolate it somewhat. Those two banks are buying stuff in the US now. The problem arises not in them entering our market but trying to put that capital to work to earn more money. They will underprice risk and be more leveraged than an average bank here because they can be after Basel II. Also they will probably make more mistakes because they will have more money to make those mistakes with.

Two more links:

cepr.org

ey.com

Pancakes for Four:

separate 4 organic eggs from their whites
beat the hell out of the whites till stiff
mix briefly to the yolks... a little salt, some sugar, a drab of vanilla, a cup of flour
mix this briefly into the eggwhites till uniformly yellow
ladle onto hot skillet (use olive oil).. just below smoking temp,
flip when bubbles all across surface

use real Maple Syrup.

Alex stares at the big stacks of sheetrock and says, "Brah, we can't work if we got nothing in the tank. Go get the grinds."

So I run back to the Lancer and collect the remains of our food supply, which is pretty pathetic: a package of smashed Pop Tarts, a can of chocolate pudding, a couple slices of molding bread, a can of deviled meat and the rocky bottom inch of a jar of chunky peanut butter. I'm relieved there's something other than the deviled meat, which looks like it comes out of the Fancy Fiesta cat food factory, while Alex never eats sugar-blitz junk like Pop Tarts.

I bring this back to Alex and he tears off the moldy parts of the bread, pops open the meat tin, digs the stinky glop out with my Swiss Army knife and wolfs down one of the worst deviled ham sandwiches ever made. I tear open the Pop Tart packages and pour the crumbs in my mouth, and we split the chocolate pudding.

Alex takes a minute to do some stretching exercises, and he tells me, "You too, Bruddah. I don't want you all jammed up so you can't help me." I roll my eyes and then follow his example, just like when we had to push the Falcon up that hill in Iowa.

"The payment examples are based on a fixed pay option ARM with a 30 year loan term and has a fixed initial payment based on a 1.00% minimum payment rate for the first year. The fully indexed rate is based on a fixed initial interest rate of 5.25%, 5.54% APR for the first 12 months and may increase or decrease after the fixed period."

"I witnessed a series of events not long ago that fairly bludgeoned me over the head with all the weight of exactly why our National Debt has spiraled out of control.

I'm a tax attorney, but the bulk of my work now centers on estate planning and administration, (the result of where I live, where the geriatric population is disproportionately large).

A good friend and client recently passed away, leaving a surviving spouse and an estate of a little over $2 million. Her husband's medical insurance had always been paid by his employer, and soon after his death she received the standard COBRA notice. Her continuing cost of insurance would not have been approximately $7,000 annually. Apparently, her momma didn't raise no dummies, and she declined continuing coverage in favor of Medicare coverage, at the same time picking up a gap insurance policy to cover out-of-pocket expenses.

The surviving spouse died shortly thereafter. Her total medical bills: About $250,000. Medicare fought with me for a while, thinking the husband's policy was primary, but I eventually convinced them that the policy had, indeed, lapsed.

Then it struck me. Her net worth at the time of death was $2 million, and she clearly could afford, even quite comfortably, the private insurance premiums. Instead, she had the ability to opt out and stick the U.S. Taxpayer with the bill!

To paraphrase the Mogambo Guru: Hahahahahahaha!

So instead of the medical bills being absorbed by a private insurer accountable to shareholders and, presumably then, doing business with at least some fashion of a risk model in place, the Federal Government picks up the tab and absorbs the cost with yet another issuance of debt financed largely by foreign investors.

Incredible!

In any event, just wanted to share with you a "true tale" from the field in which I thought you might find some interest."

"For the sake of argument, when the Fed reduces short term rates the commercial banks borrow short and lend long using derivatives to contain the risk. By lending long they drive down long-term rates even if the foreigners don't continue buying.

From a foreigner's point of view, a bond already held will be appreciating in value as long term rates decline due to the arbitrage behavior of the commercial banks. This means the foreigners have no incentive to sell since the value of their bond investment is increasing. Furthermore, new foreign investment may well conclude that the rising value of bonds overrides the loss of interest income and purchase even more. All these purchases have the effect of driving up the value of the long bonds even further.

As usual in the world of mathematical finance, nothing is simple. The point is, don't sell the Fed's main bazooka short. Controlling short term rates is potent weapon. Loaned money has this two-edged quality of being profitable on the basis of yield when rates rise and on the basis of equity as rates fall. Took me a long time to get my five neurons wrapped around that one. Lesson: money-grubbing souls can make a buck whether rates rise or fall.

If the Fed immediately lowered the short term rates to 1% the arbitrage opportunity would be immense. There would be no amount of short term bond issuance that could soak up demand.

In spite of this counterpoint, I think your main assertion, that the housing bubble can't be reinflated, is spot on. I think the Fed underestimated the willingness of lendors to assume risky investments. This led to the creation of new financial funding methods such as principal only and negative amortization loans. The effect was to drive the house prices way above what could be financed by a conventional 30 year mortgage at historically normal rates.
The best the Fed can hope for now is to lower rates as necessary to contain the damage and let the market sink less rapidly than otherwise. But sink it must since unless many of us plan to pay 70% of our slave wages to the financial land barons for the rest of our lives. They'd love that but unfortunately it leaves little left over for GM or Home Depot.

Controlled deflation of housing values via Fed short term rate setting requires low inflation. If lowering rates increases economic activity to the point that commodities are bid up in price then foreign investors are spooked since one of the main reasons they hold dollars is that it's the settlement currency of account. If the point comes that the loss of purchasing power due to the dollar's rise vis a vis those commodities exceeds the gain from rising bond prices they'll be tempted to jump ship, and that's what the Fed fears most.

That's why the Fed continues to raise rates. They hope to induce a mild recession to take some steam out of energy and commodity demand. A fundamental requirement of being the key currency is that it must not rise rapidly against the commodities it prices. I happen to believe that the determination of the US to retain the dollar's role as primary currency of account for energy is central to the Fed's strategies.

It's a dangerous game but I think the Fed plan is to raise at least another half point and then wait for the recession to develop. When the market tanks the Fed will lower rates again once it's convinced the housing bubble is properly pierced. Every new house, on average, sucks up 400 pounds of copper. Every new house in the exurbs creates at least one and often two 80 mile daily commutes. Easily 5 gallons of gasoline. Half a million McMansions in Foggy Bottom can use up 2.5 million gallons of gas a day. Hard to believe the Fed can't see that this kind of wild development in the hinterlands has to be curbed. This forced recession is, in essence, a systemic response to higher energy prices. I think it may be quite healthy. When money talks the system listens.

But as Nick Charles would say, all this thinking is having a serious effect on my drinking." LJR

Your call about the market decline was interesting. I saw it coming from the perspective that Commercial traders were establishing large net short positions in Dow futures for some time. Ahead of the Fed Commercial traders increase positions net short from 21% to 54% (largest percent net short position in 10 years), Large traders increased 7% to 17% net long, and Small traders (generally the public) increased 14% to 37% net long (largest percent net long position in 10 years).

Furthermore while prices have moved higher since 2004 Open Interest has failed to surpass the 12/16/04 high of 74,000 as compared to the recent peak of 67,000 on 6/13/06 suggesting money has flowed out while prices have moved higher. Even with the increases stated above overall Open Interest decrease by over 10,000 from the previous week. I track this data from the Commitments of Traders Reports (COT) published by the CFTC.

In summary the smartest money is betting to the short side and the run-up has sucked in the public once again. Although price structure remains intact the 2003 rally of the S&P 500 and Dow Industrials is technically and fundamentally (COT) weak. It appears that another painful lesson is about to be handed to the masses.

Here's the real reason for the stock market's fairyland climb: Bubble follows bubble follows bubble. As the Dot-com stock bubble expired, dropping the NASDAQ from 5,300 to 1,100, the psychology of the Free Lunch--money for nothing but playing with money--transferred seamlessly to the real estate market, driving it to unprecedented classic-bubble heights. As this "free lunch money" (all $2.5 trillion of it) gushed into homeowner's pockets, about 2/3 was spent (according to Fed estimates cited in previous entries) but some flowed into other investments such as the resurgent stock market.

Bubble follows bubble follows bubble. Borrowed money has also been flowing into precious metals, art, you name it: every asset class is now in a bubble, thanks to the trillions released by super-low interest rates and unlimited liquidity/low credit standards.

Market technical analysts know that "market internals" (advance-decline lines, number of new lows to new highs, volume, etc.) have been deteriorating for months. This deterioration has been masked by the rising index numbers; but the "health" of the advance as measured by technical indicators is akin to the racing heartbeat of the cardiac patient on the treadmill. Boy, his pulse is rising very healthily--until his over-worked, unhealthy heart blows a gasket.

Cynical chart watchers like me suspect another force is at work--the sucker's rally. It works like this. "Smart money" (hedge funds and other institutional players with billions in hot money) bids the stock market up by buying the heaviest-weighted index stocks--the large-cap stocks like Exxon, Microsoft, GE, etc.--which goose the indices up regardless of how well the smaller companies are faring. Then, once the "retail trade" (i.e. us poor dumb small-fry with our IRAs and 401Ks) buy into the "rally" and start buying, the "smart money" sells their shares at the top and awaits the inevitable roll-over and decline.

The Fed meets on May 10. Mark your calendar: May 11 the decline starts and then rapidly picks up velocity. The "smart money" has been exiting all month while the con was set. Reality has a nasty habit of trumping wishful thinking--or a smart con.

Really? $75 a year for a page full of links that other people send him? Hardly seems like original content, or time-consuming either. The stuff you write is 10X more creative than a simple "link farmer" assembling a list of pages based upon what other people send him. Heck, the entire content of the WSJ online is $79/year. I would subscribe to patrick.net for something like $10/yr, but $75 no way, just out of principle - there's no creativity involved whatsoever. Heck, next month, someone else (maybe me) will start compiling links of housing stories.

I'm not sure why, but this move irritates me.