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Are We Headed Straight for Recession 2013?

By , Contributing Writer, Money Morning -

Fresh reports pointing to a slowdown in the struggling U.S. economy, coupled with worries of Europe's fiscal woes, have experts warning that Recession 2013 is inevitable.

The dismal and downtrodden jobs numbers, the elevated long-term unemployment levels, the ailing housing market and the looming "fiscal cliff" are all fueling recession fears.

Just last month, the nonpartisan Congressional Budget Office reported that unless lawmakers move to avert scheduled tax increases and spending cuts at the end of this year, a recession is likely.

This marked the first time the CBO has forecast a recession resulting from the fiscal cliff.

The CBO projected that gross domestic product (GDP) will contract by 1.3% in the first half of 2013 before growing 2.3% later in the year. Annualized, GDP would grow just 0.5% in 2013.

That forecast is an about face from January when the CBO forecast a 1.1% GDP growth in 2013 (if policies are not dealt with).

The report stated, "Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession."

Now other economic experts are saying the same.

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Obamanomics: What You Can Expect if President Obama Wins the Election

By , Global Investing Specialist, Money Morning -

Now that we are left with a two-horse race for president, the markets are going to begin to handicap the November results.

However, when the markets begin to handicap the race it will be about a lot more than just picking the eventual winner.

Instead, everything will revolve around the policies and consequences that come along with the winner.

The difference in approach promises to be stark with "Obamanomics" on the left and "Romneynomics" on the right.

Each one comes with its own set of consequences, though.

Today I'm going to look at "Obamanomics II," or the policies we will get if President Obama is re-elected.

But those on the left shouldn't despair...In my next piece, it's Romney's turn.

As for the horserace itself, it's too close to call, with neither side having much chance of winning a big victory.

President Obama Has the Edge

Even still at the moment, President Obama appears to be ahead. Apart from his modest lead in the polls, my former home state of Virginia appears to be swinging definitively toward the Democrats.

Yes, Republican Bob McDonnell did win the Virginia governorship handily in 2009, but he was a very good candidate. Moreover, turnout in gubernatorial elections is normally low. Thus I believe the latest polls showing Obama with a 7% lead in Virginia are accurate, and without Virginia Romney has a very difficult path to the presidency.

If we believe the presidential election will be close, then it follows that Congress and the Senate elections must be close, too.

If Obama wins in November, the most likely outcome must be that the Democrats will hang on to the Senate, while the Republican House majority survives, albeit much smaller than at present.

With this combination, the president's more extreme wishes (or those of his team) will be restrained. But as a newly re-elected figure he will nevertheless have more power to get what he wants than he does currently.

Whatever the congressional numbers may be, the president's first task will be to face the "fiscal cliff" of January 2013, when the Bush tax cuts and temporary payroll tax cuts expire and automatic spending "sequestration" comes into effect.

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Case-Shiller Home Price Index and Home Sales: What the Latest U.S. Housing Market Data Show

By , Contributing Writer, Money Morning -

The latest U.S. housing market data released Tuesday underscore the persisting trend of uneven performance in the industry.

The S&P/Case-Shiller Home Price Index showed prices hit post-bubble lows in February, and U.S. home sales data show that while not all housing news is dismal, a strong and stable recovery is a long way off.

The U.S. housing sector has been a drag on the economy since a home price bubble burst and helped cause the 2007-2009 recession. While many economists maintain that a budding recovery is blooming in the troubled sector, recent housing market data are simply another wake-up call.

Here's a look at the numbers.

Case-Shiller Home Price Index Falls

The Case-Shiller Home Price Index of 20 cities revealed a price drop from January to February of 0.8% (on a non-seasonally adjusted basis). The 10-city index also fell 0.8%.

The 20-city index declined 3.5% from a year ago, while the 10-city composite slipped 3.6%.

"Nine housing markets and both composites hit post crisis lows," David Blitzer, a spokesman for S&P, told CNN Money. Included in the nine markets are Atlanta, Charlotte, Chicago, Las Vegas and New York.

Blitzer went on to note, "While there might be pieces of good news in this report, such as some improvements in many annual rates of return, February 2012 data confirm that, broadly speaking, home prices continued to decline in the early months of the year."

Foreclosures and other distressed property sales continue to be the main challenge for home prices, Pat Newport, an analyst for IHS Global Insight relayed to CNN.

"We still have 6 million homeowners who are late on their payments," said Newport. "We'll still have lots of foreclosures, which will depress prices."

In fact, with January's mammoth $26 billion mortgage settlement between five major banks and a group of state attorneys general, foreclosures that had been held up for a year or more are now moving forward.

"Enough homes are in the foreclosure pipeline to keep house prices falling through much of this year," Celia Chen, a housing economist at Moody's Analytics, told the Los Angeles Times.

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New Wave of Foreclosures Will Sink the Housing Market Rebound

By , Associate Editor, Money Morning • @DavidGZeiler -

The long-anticipated housing market rebound will hit a speed bump this year as the number of foreclosures rises again.

With January's mammoth $26 billion settlement between five major banks and a group of state attorneys general, foreclosures that had been held up for a year or more are now moving forward.

The spike in foreclosures will arrive just as other data, such as the 5.1% increase in new construction permits reported on Tuesday, had begun to point to a housing market rebound.

"We expect to see foreclosure-related sales increase in 2012, particularly pre-foreclosure sales, as lenders start to more aggressively dispose of distressed assets held up by the mortgage servicing gridlock over the past 18 months," Brandon Moore, CEO of RealtyTrac, told CNN Money.

RealtyTrac's February report showed new default notices - the first step in the foreclosure process - were up 1% from January. Default notices increased dramatically in some states, such as Pennsylvania (35%), Florida (33%) and Indiana (37%).

"The pig is starting to move through the python," Daren Blomquist, director of marketing for RealtyTrac, told CNN Money.

Distressed sales already account for about one out of three U.S. home sales.

The National Association of Realtors (NAR) reported this week that 20% of home sales in February were foreclosures and 14% were short sales.

In a short sale, an owner who owes more on their home than it's worth agrees to sell for less, with the bank agreeing to accept the loss.

That's a far cry from a normal housing market, when distressed sales are less than 5%.

For 2012, RealtyTrac predicts a 25% increase in foreclosures, which will push the portion of distressed sales even higher.

And the picture doesn't figure to improve for quite some time. Paul Dales of Capital Economics estimates as many as an additional 3 million foreclosures over the next several years.

The Uneven Impact on the Housing Market

However, the impact of this wave of foreclosures will be felt unevenly.

All of the states that saw increases in new default notices were those in which the courts play a role in foreclosures. The robo-signing issues addressed in the bank settlement occurred almost exclusively in such states.

States that don't use a judicial foreclosure process didn't accumulate a backlog. In fact, foreclosure activity in those states was down 5% in February from the previous month, and down 23% from the February 2011.

But among the 26 states that use a judicial foreclosure process, activity rose 2% in February from the month before. Foreclosure activity was up 24% from the previous year.

That leaves little room for optimism in hard-hit states such as Florida.

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Has the Housing Market Finally Bottomed?

By , Global Investing Specialist, Money Morning -

It was the most atrocious bubble in U.S. history pushing tens of millions of Americans into financial misery.

Even today, the last of the lawsuits have yet to be filed.

But five years later it's finally coming back.

The housing market has bottomed and there's money to be made on its return.

The evidence of this case continues to build.

Signs of a Housing Bottom

For instance, the National Association of Homebuilders' Housing Market Index rose five points to 29 in February marking its fifth consecutive monthly increase.

Admittedly, 50 is supposed to be a neutral level for the index. Even still, the current level of 29 is up 20 points off of the low, and is the highest it has been since 2007.

Then there are housing starts, which rose in January to an annualized 699,000 units.

Again, that's not very impressive compared to 2005's total of 2,068,000. But it's still a hell of a lot better than 2009's average of 554,000 and 2010's 586,000.

Incidentally, there's some important data in the details here. Multi-family starts were 175,000, up more than 70% over 2009, while single-family starts of 508,000 were only modestly above the 2009 average.

Meanwhile foreclosures in January 2012 were down 19% from a year earlier.

Since the "robosigning" scandal and the delays that followed it now seem to have passed through the system, that decline suggests that the level of troubled mortgage borrowers is also trending downwards.

The bottom line: Housing has found a bottom and is trending back up again.

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Iran is Now a Full-Blown Crisis, Stage Set for $200 Oil

By , Global Energy Strategist, Oil & Energy Investor • @KentMoors_OEI -

Just when it looked like we could take a breather from the Strait of Hormuz, all attention is back on Iran.

There are three reasons for this - all happening within the last week:

  1. First was Tehran's successful launch of a satellite, viewed by all in the region as being for military intelligence.
  2. Second, in his toughest talk to date, Iranian Supreme Leader Ayatollah Ali Khamenei voiced defiance to Western sanctions and pledged open retaliation if they are instituted.
  3. Finally, last Thursday, U.S. Secretary of Defense Leon Panetta expressed concern that, if matters continue, Israel could attempt an air-strike takeout of Iranian nuclear facilities within a month. Iran has been frantically moving essential components of its nuclear program underground to withstand such an attack.
All of this is, once again, leading to a rise in crude oil prices.

What's more, the EU decision to stop importing Iranian crude starting July 1 will cripple any chance Tehran has to combat escalating economic and political turmoil at home.

Yet Khamenei's defiant tone during his Friday prayer meeting speech indicates that Iran's religious leadership will not wait for the system to unravel.

And that is what makes this both a full-blown and an intensifying crisis.

Brinksmanship in the Straits of Hormuz

So what's being done?

Washington has little - leverage, save its ability to temper an immediate escalation by Israel (leverage the U.S. can still apply, at least for the moment). It also has some indirect influence on what the E.U. does.

Meanwhile, Saudi Arabia also is a wild card. It will not tolerate a nuclear Iran.

And yes, there are ample indications that American and Israeli intelligence have concluded Iran will achieve the ability to develop nuclear weapons in the next 18 to 24 months.

Some elements of that process will be available earlier, but remember: A weapon is of little value unless it can be controlled and delivered. The logistical and infrastructure considerations need to be in place first.

Yet with such an inevitable conclusion staring them in the face, the West has decided to embark on a risky path...

The target here is not the nuclear project at all (over which there is less and less outside control). Instead, it has become about creating massive domestic instability to bring down a regime.

Now, this is not about ending the theocracy. With or without Mahmoud Ahmadinejad as president or Ali Khamenei as supreme leader, Iran will remain a Shiite-dominated country. Religion decisively controls politics, and the clergy oversees the society.

The West is seeking a more moderate application of what will remain the Iranian cultural reality.

However, as the brinksmanship intensifies, so will the price of crude oil. Tehran, in this dangerous game of international chicken, really only has one card to play - the Strait of Hormuz.

There has been much misinformation circulated about the strait. Here are the facts.

On any given day, 18% to 20% of the world's crude oil passes through it.

According to the Energy Information Administration, the Strait's narrowest point is 21 miles wide; however, the width of the shipping lane in either direction is just two miles, cushioned by another two-mile buffer zone.

Of greater significance, though, is the fact that most of the world's current excess capacity is Saudi. (This is the oil that can be brought to market quickly to offset unusual demand spikes or cuts in supply elsewhere.) And, unfortunately, Saudi volume must find its way through the same little strait.

If we're unable to access the Saudi excess, that loss guarantees the global market will be out of balance. That will intensify the price upsurge - an upsurge that is already happening.

Now for the question I'm being asked several times a day in media interviews...

Just how bad can it get?



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Romney Avoids Nevada's Housing Market Problems with a Tactic That Could Work – for Now

By , Associate Editor, Money Morning -

Mitt Romney is expected to take Nevada by a large margin this weekend – even though he joined fellow candidates in failing to address the staggering number of foreclosures plaguing Nevada's housing market. A poll released early Friday gave Romney a 20-point lead over former Speaker of the House Newt Gingrich. But Romney's win would […]

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Money-Markets, CDs, and Bonds: The Ups and Downs of Stashing Your Cash

By , Contributing Writer, Money Morning -

In today's volatile markets many investors are faced with the same troublesome question - "Where should I park my cash?"

In fact, investors have withdrawn a net total of $328 billion from the stock market since 2007, according to Strategic Insight.

Ever since, a big portion that cash has been looking for a home.

It seems simple enough, but investors are finding the answer to be more complicated than they imagined...

Thanks to our friends at the Federal Reserve, interest rates are at record lows. In fact, they're so low that most investors are getting practically nothing in returns.

Meanwhile, the stock market has put on a New Year's rally, rewarding those who were willing to jump in while leaving cautious investors wondering if they're holding too much boring old cash.

However, in order to have an adequate safety net, your cash on hand should be enough to cover about a year's worth of expenses, according to Shah Gilani, a retired hedge fund manager and Editor of the acclaimed Wall Street Insights & Indictments newsletter.

"That's a good safety net," Shah says.

But no matter how much cash you hold, you still have to balance your need for higher returns against your risk tolerance.

Because whether you're thinking "safety first" or are tempted to reach for a little more yield, the choice you make might determine whether you're able to sleep at night.

Three Places to Park Your Cash

With that in mind, here's a look at three of the most popular places to park your cash.



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Options Strategy: How a Home Depot (NYSE: HD) Straddle Could Provide Investors Lower Costs, Higher Returns

By , Contributing Writer, Money Morning -

After more than two years of false starts, the battered U.S. housing market may have finally found a bottom.

If so, that prospect offers options investors a chance to earn higher returns on lower costs using a Home Depot (NYSE: HD) straddle. (More on that later...)

In fact, here are just a few of the latest statistics that lead me to believe housing will slowly begin to recover over the next four months...

  • Rates for all types of mortgage loans hit record lows this month, with the benchmark 30-year fixed mortgage being offered at 3.88% last week.
  • And finally, last Wednesday, members of the National Association of Home Builders (NAHB) expressed their highest level of confidence in the housing market since June 2007 - the fourth consecutive month that sentiment levels have risen.
So, given the increasingly positive outlook for the housing market, the real question becomes: How can investors use this opportunity to their advantage in the first half of 2012?...

The answer is an options strategy that offers lower risk and potentially higher rewards.

How to the Play the Housing Market Bottom

Now typically, stocks that rise or fall with the tides of the housing market fall into three categories:



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What the World Will Look Like if Occupy Wall Street Wins

By , Chief Investment Strategist, Money Map Report -

There are many reasons why the Occupy Wall Street movement could fail - a lack of cohesion, too many directions, no leadership, not enough money, and no representation, to name a few.

But what if it "succeeds?"

What would our investing landscape look like and what would we do about it?

I think that's an interesting question, especially since Occupy Wall Street has gained some traction, even taking on a global appeal. And more importantly, there are two other reasons the movement could succeed:

  • First, our political system is broken and has deteriorated into little more than a fancy debating society.
  • And second, the world's central bankers remain out of control; their bailouts are saving the irresponsible at the expense of the hardworking. Our regulators and Wall Street remain locked in an unholy alliance that has done very little to fix the underlying problems that have resulted from decades of bad fiscal policies, unsound monetary practices, and dysfunctional leadership.
You may remember the 1960s and the many protest movements that were very clearly focused on civil rights and the Vietnam War. You even may have been part of a few.

A lot of people thought they would go away, too. But Tom Hayden and his collection of Students for a Democratic Society didn't. Nor did Abbie Hoffman, Bobby Seale, and others. Their passion and that of thousands who joined in eventually succeeded in changing the course of social consciousness.

OWS could too.

By shunning the hierarchy that is organized politics and corporate America, there is the sort of strength necessary to address the growing disparity and the vanishing opportunities that are the new economic reality for millions of Americans.

I, for one, am hopeful that OWS will find the leadership needed to clearly delineate its goals and mandate change on the strength of the raw unvarnished potential that is now driving it.

I am also hopeful that OWS will succeed in raising the social consciousness to the point that living within our means becomes both an economic and political reality.

But that's just me. You may have entirely different feelings. That we might not agree is irrelevant.

Since OWS began, I've been watching carefully and doing a lot of deep thinking about what things might look like if OWS "wins" - however you define the term.

So here's a look at some of the potential changes that could take place if the movement succeeds:

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The Housing Market is Finally Bottoming – Here's How to Play It

By , Global Investing Specialist, Money Morning -

The housing market remains a drag on the economy, but there are indications that it is finally starting to bottom.

Prices have stopped declining, and there is even some sign of life in sales.

Not all the news is good, of course. New home sales dropped still further in August from July, falling to a pathetic 295,000 annual rate compared to the 1 million-plus in the good years. And housing starts fell to an annual level of 571,000 from 601,000 in July - that's 12% below their August 2010 level.

Still, this is to be expected. The new home sector should be the last to turn up. There is a massive overhang of existing homes, both through foreclosures and through suppressed sales from homeowners that are "under water" on their mortgages and can't afford to sell.

With the exception of a very few markets - such as North Dakota (4% unemployment and new jobs appearing from the Bakken oil shale) and the overstuffed bureaucrat haven of Washington and its surrounding suburbs - there should be very few new homes built for the next several years.

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Housing Market has Changed – Risks are not Recognized

By , Money Morning -

Global Economic Intersection Article of the Week Back in May, I posted an article on Minyanville asserting that all-cash buyers have kept several major housing markets from collapsing. (See All-Cash Buyers Preventing Collapse of Housing Markets.) With new evidence in to support this claim, now is a good time to revisit this important issue and […]

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No Housing Bottom in Sight

By , Money Morning -

Economic Intersection Article of the Week Guest author: Keith Jurow is the author of the MVP Housing Market Report. This article was posted at Minyanville with the title "There Is No Housing Bottom in Sight" At the end of June 2011, macromarkets.com released the results of a poll in which 108 leading economists and housing […]

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