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Latest News: Past, Present, Future (Friday, June 18, 2010)

Latest News is more than a changing, daily distraction. It can show progress or the lack thereof. For example, review this site’s Latest News archives presented by link below. Topics included: “Rising Tides, Models, and Asset Prices”, “Perfect Storm In Personal finances and Economy”, “Japan Syndrome Revisited?” , and “Real Money, Real Estate, Real Impacts”.

Momentarily ignore the dates of each article but read the content. Then note the date of each piece. Basically, the theme is the same but supportive data series have shown some changes with occasionally large swings. Economics, finance, and other societal occupations behave similarly. There tend to be trends, processes or movements along paths and not isolated one-event and “that’s it folks” and then things go to normal.

For perspective, evaluate the Latest News articles then and now and introduce other sources too to determine where we have been, we were are now, and where we may likely be.

Then and now the real estate market is weak. What has happened over the years? The market has become weaker. It is the same news only different degrees. A quick reality check is to compare the number of foreclosures, delinquencies, defaults, short sales and other indicators and it apparent that the real estate market has declined for both residential and commercial properties. Even prices have dropped in many areas despite lower mortgage rates. The private mortgage market has morphed into a government backed one. Does that morphing reflect the same, improved or declining confidence? How does that measure up for major lending institutions? Does most financial institution mortgage lending run independently? Or, does it now require a dominant guarantee to conduct business and buy confidence?

In general, it is the jobs/employment area that drives residential real estate or, housing. Declines in the number of employed has not reflected new found wealth on a massive scale but rather declines in economic activity. It takes more than a bunch of newly hired but disenfranchised workers appearing as increased hiring activity to propel economic activity. In other words, some numeric economic time series may imply some increase in hiring, however, the real force is that you have to work more jobs for less. With the passage of time these economic and financial series become less robust and less useful quantifying the real economy.

A consumer driven economy needs financially sound consumers, not desperate or impoverished ones. Substituting debt for income is not a sustainable economic-financial system, especially on a large-scale be it macro or global. Moreover, the likelihood prospect of debt servicing and payback even for credit cards and other consumer loans diminishes. This quickly impairs the true balance sheet of an organization despite allowances made for marking asset prices.

When you compare today’s headlines, the topics and themes remain but the magnitude of the problems has actually increased.

Back-tracking to TARP and various stimulus funding the analysis is truly follow-the-money. For all that was spent, given, or allocated how much was simply directed to consumers? With minimal relief, consumers got squeezed. As conditions worsened some parties stopped paying the mortgage or strategically defaulted in order to maintain consumption, not debt servicing. Looking at financial institutions their balance sheets have improved because of aggressive buying of Mortgage Backed Securities (MBS) but the debtors remain vulnerable. Commensurate relief has been and still is lacking on the consumer side.

The Gulf of Mexico oil spill is a reported “mystery”. Evidently it occurred but timelines vary. If you go to the stated date of explosion and collapse you can narrow an “event” but the process is continuing. News items of flow, spill discharge or leakage amounts are wide ranging and are rising overall. What else is going on is a major question mark. One can only hope that the spill containment is more successful than the announcements and remedies applied to the financial markets. Early top-level estimates regarding subprime/financial toxicity were stated at $50-100 billion. Approximately a year later the financial containment commitment increased by a factor of 100. That increase added a couple of zeroes to the early numbers.

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