Investment funds are buying billions of dollars’ worth of home loans, discounted from the loans’ original value. Then, in what might seem an act of charity, the funds are helping homeowners by reducing the size of the loans. 

       
But as part of these deals, the mortgages are being refinanced through lenders that work with government agencies like the Federal Housing Administration. This enables the funds to pocket sizable profits by reselling new, government-insured loans to other federal agencies, which then bundle the mortgages into securities for sale to investors. 

       
While homeowners save money, the arrangement shifts nearly all the risk for the loans to the federal government — and, ultimately, taxpayers — at a time when Americans are falling behind on their mortgage payments in record numbers.

        
On August 12, excess reserves at the Fed stood at $708.501B.  For November 18, the figure has soared to $1.046180 trillion. Now that the Fed pays interest on reserves, banks are receiving free money from the Fed, indirectly on US taxpayers.  Why lend when you can mint money for free on the arb?

        
The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.  But that happy situation, aided by ultra-low interest rates, may not last much longer. 

       
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

Reports reach us that China intends to purchase an additional 10,000 tons of gold to fund the renmimbi, so that China can invest more widely and develop new technologies. There is also talk of the Hong Kong dollar replacing the US dollar. All this is positive for China; it is just that they are mired in Keynes philosophy of stimulating the economy. They have used $1.8 trillion since February and created new bubbles in the stock market and real estate.

The subjective October sales figures by the national Association of Realtors said sales surged a record 10.1%, the highest since February 2007. Year-on-year sales rose 23.5%. We will have further comments later after we see the internals.

The St. Louis Fed President Bullard says the Fed should extend its authority to purchase more MBS, mortgage-backed securities and agency, Fannie, Freddie, Ginnie and FHA bonds. The Fed will buy $1.25 trillion of MBS by March and $175 to $200 billion in agencies. They refuse to tell us what they are paying for this toxic garbage.

The Chicago Fed national Activity Index fell to minus 1.08 from minus 1.01 in September. The 3-month moving average fell to minus 0.91 from minus 0.67. Growth is below historical trends. That move below minus 0.70 in the 3-month average index. Of 85 indicators 53 were negative in October.

Schools all over the nation are going to force furloughs on teachers to save money. Now that the stimulus loans for schools and unemployment have been spent, massive cuts are coming. We warned our daughter, a teacher, months ago of what was coming. Banking, Wall Street, insurance and Washington are living fat and high on the hog. They even tell us Obama saved the system from collapse and that economic conditions are improving. Then again, Wall Street in their arrogance tells us they are doing God’s work. That is why they get giant bonuses as the public starves. The modern version of “Daddy Warbucks.” In case you hadn’t noticed there has been little change. What change is trying to be stuffed down our throats is Medical Reform, Cap & trade, more war and a tax on us for creating global warming that doesn’t exist.

Iran says it has saved $5 billion due to shifting away from the US dollar.

As you know 3-month Treasuries are yielding 0.01%; the one-year 0.26%; the 2-year 0.77% and the 10-year 3.35%. As a result $260 billion has gone into bond funds this year and $2.6 billion into stock funds. We find that revealing inasmuch as the Dow has gone from 6600 to 10,500. You can now clearly see the dynamics created by leveraged TARP funds - $400 billion left money market funds due to miniscule yields and the end of federal guarantees on 9/18/09. A good part of the funds ended up in US Treasuries. A move calculated to drive funds into Treasuries.

The relatively new dollar carry trade has fueled the market as well. That is when you borrow dollars at near zero interest rates and purchase a different currency paying a higher interest rate. The dollars are used to speculate as well usually using leverage. As long as the dollar falls the trade remains very profitable.

The market is discounting a 5% rise in GDP in 2010 and earnings increases of 40% as 22.2% or more than 25 million people remain out of work. The P/E ratios are as a result at 23. In addition the Fed has indicated it won’t raise interest rates for 1 year to 1-1/2 years and perhaps longer. That is what Japan has done for 18 years and has wallowed in depression as a result. Evidentially that is the intention of the Fed as well, only the US will have much higher inflation than the current real inflation of 7-1/8%, not the official 1.2%. The creation of money, credit and monetization of dollars is causing China, Brazil and perhaps Russia to put a tax on short term hot dollar capital from coming into their countries, which builds up inflationary pressure in the US.

        
Mark Hanson explains: NAR’s Voodoo made for another headline that paints an inaccurate picture of reality. Yes, Oct sales counts did not fall as they typically do because of the a) last minute rush to close by the original Oct 31st tax credit sunset b) sudden plunge in mortgage rates to historic lows in September, c) and continued price depreciation that carried the market into the shoulder season.  

        
But taken in context of as small of a time frame as even year-to-date and examined in real terms, the picture is much different.  In fact, the total dollar amount spent on Existing Houses YTD 2009 in nearly 10% less than Oct YTD 2008.  We have heard nobody mention this fact -- measured in this context, housing is still falling sharply. 

        
October Existing Home Sales (NSA) came in at 499k…the exact same amount is in August. This compares to September’s downwardly adjusted 468k and last October’s 413k. “Flip-Adjusted”, total sales were closer to 425k.  Prices at the median and average continued to fall -- five months straight since June. MoM prices fell 1.6% and 1.7% on average, both larger than the average monthly declines for 2009.

        
So, a) the Fed spends a trillion + to push rates to historic lows b) the gov’t gives out a tax credit; prices continue to fall c) overall financial market sentiment improves considerably over a year ago d) rates plunge again in Sept e) and during the first half of 2009 foreclosure inventory was huge -- and only 61k more houses were sold though Oct 2009 than during the same period last year with the total amount spent 10% lower.  Compared to Oct YTD 2007, sales are DOWN 635k. And remember, in 2007 prices were at or near all time highs.  Only 61k additional sales in 2009 YTD vs. 2008 may be an ‘improvement’ but in the grand scheme of the housing market and trillion + spent to support it, these results are anemic at best and not self-sustaining.

        
Single-family home sales rose 9.7 percent to a seasonally adjusted annual rate of 5.33 million in October from a pace of 4.86 million in September, and are 21.4 percent above the 4.39 million-unit pace in October 2008. The median existing single-family home price was $173,100 in October, down 6.8 percent from a year ago.

       
Existing condominium and co-op sales surged 13.2 percent to a seasonally adjusted annual rate of 770,000 units in October from 680,000 in September, and are 40.8 percent above the 547,000-unit level a year ago. The median existing condo price4 was $172,900 in October, which is 10.4 percent below October 2008.

        
Preliminary tax collection data for the July-September quarter of 2009 show continued widespread and sharp declines for most states for all three major sources of tax revenue, as well as for overall taxes.

      
The Rockefeller Institute’s compilation of data from individual states shows collections from major tax sources were $119.7 billion in the third quarter of 2009, compared to $134.0 billion for the same states during the comparable quarter of 2008. Overall, tax revenue declined by 10.7 percent in nominal terms. After adjusting for inflation, tax revenues declined by 11.3 percent in the third quarter compared to the same quarter of 2008. Personal income tax declines represented a $6.7 billion loss and the sales tax a $3.8 billion loss for the period. Corporate income tax saw the sharpest rate of decline at 19.4 percent, followed by the personal income tax and sales tax at 11.4 and 8.2 percent, respectively.

      &n

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