Governments have gone to extremes trying to prop up and save home prices from the normal corrective forces of over-supply and weak demand. The trouble is they have blown a fortune trying to stop the inevitable reckoning process, and in the end the dominant forces of downward prices will surely resume. As we have seen in Japan over the past 20 years, the more governments try to stop the correction needed the more they drag out the painful process. Housing expert Robert Shiller talked on CNBC yesterday about the double dip risks to the economy ahead. The bottom line is that governments are not magicians who can solve over-capacity problems with a flick of their fiscal wand; they can elongate the problems, but they cannot "fix" them. I think 2010 will be the year when the world wakes up to this realization.

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The US banking system will lose 30 percent more than consensus estimates as shrinking loan portfolios squeeze profits, analyst Meredith Whitney told CNBC.

While increased governmental regulations will restrict the industry somewhat, Whitney said that the decline of up to 20 percent in lending portfolios will enact far more damage on bank balance sheets.

"Your good borrowers don't want to borrow, and your bad borrowers you're trying to kick out of the system," she said. "So on average lending portfolios are down 4 to 20 percent and we think they're going to be down another 10 to 15 percent for all the big banks this year."

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Gary Shilling was on Bloomberg yesterday explaining the possibility of parity for the Euro-Dollar exchange rate. That would be a further 25% increase of the U$ versus the Euro at this point and is likely to have broadly negative implications for other risk assets over the next few months. A strengthening dollar also presents extra hurdles for the Obama administration's mandate to create new jobs asap. Every 1 percent increase in the dollar, averaged against other major currencies, knocks U.S. exports down by about $20 billion annually and destroys some 150,000 jobs, according to the Peterson Institute for International Economics, a Washington-based nonpartisan research group.

As I have said for some time now, it is not that the US is doing much right these days, but more that the world is now realizing the Euro zone is deeply mired in its own debt problems and even less along the road to solutions than the US. Since the credit crisis hit first in America the focus has been mostly on US ills for the past couple of years as the world punished the dollar. Now the realization is building that the EU problems are massive and even harder to manage than the US in many ways with all of the EU's separate governments, policies and philosophies.

Watch the Bloomberg clip here.   more »

If I were a semi-retired billionaire I would hope that I would not just sit around my house shopping on-line and drinking martinis, I would hope to invest my energy in solving a world problem or two. In 2050 I will be 84 and my kids will be 51 and 52 hopefully with kids of their own. And hopefully by that point, we will have engineered for the world much more sustainable methods of harnessing and burning energy on our planet. Gates speaks about a new type of nuclear reactor he is investing in to achieve the attainable "miracle" of zero carbon emissions globally by 2050. I know it is possible to achieve innovation "miracles" (we have certainly done it many times before) and especially when people stop resisting change, and stop spending their time arguing about whether cleaner, sustainable, domestic energy is a good idea or not. Can we just get on with it already please? Time is a wasting.



Hat tip Barry Ritholtz   more »

Demand is a broad term that encompasses, stock piling and speculative interest. At the end of the day, consumption demand is what dictates sustainable price moves, and consumption demand has not recovered to support massive prices spikes in copper and other commodities the past few months. see Copper Prices in for a massive correction. Buyers should beware.

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Ms. Park was a guest on BNN this morning, Wednesday February 17 at 8:35 am est. A clip of the interview is available on the BNN web site.   more »

The Vanier Institute today released its 11th annual report on The current state of Canadian family finances: 2009 report. Some excellent charts depict key trends in the financial status of Canadian families. Its not a pretty picture. Some of the highlights:

-Average household debt climbed to a record $96,000 per family in 2009
-Debt to family income levels rose to 145% (!), the highest ever reached since the study began and predicted to climb to 160% by 2012 if trends persist
-mortgage payments more than 90 days in arrears jumped 50% over 2008
-credit card payments in arrears three months jumped 40%
-59% of family finances were in such a fragile situation that a delay of just one week in a pay cheque would cause serious difficulties
-70% of women with young children were now working outside the home, pointing to the need for two incomes to make ends meet.
-The booming housing market was singled out as a particular area of concern, with record-low interest rates encouraging families to take on more debt than they can afford to buy a property.
-Over the past 20 years, Canadian housing prices have averaged 3.7 times household earnings. At the end of 2009, prices are closer to 5 times household earnings with real estate making up a record 48% of the net worth of Canadian households

The following quote captures some of the study's key conclusions...   more »

Nouriel Roubini was a guest host Friday on CNBC. Good discussion on Greece and the "rolling debt crisis" around the globe.

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Apparently there is a move afoot to get CNBC host Larry Kudlow to run against Sen. Charles Schumer (D-N.Y.) in the upcoming election. The scarier thought is that he might win. In my opinion, there is hardly a soul alive who represents reckless financial commentators better than Larry Kudlow; and that is saying something because the reckless-commentator-pack in financial media is broad and deep.

I have cringed at Kudlow's perpetually-bullish, far right rants since he first began on CNBC's "Kudlow and Cramer" in the late '90's. Back then Kudlow played straight man to Jim Cramer's madman skits. After that deadly duo broke up, Kudlow went on to direct his own panels of nightly nonsense.

This article from Andrew Leonard examining Kudlow’s market-call record is cathartic:

“It's not just that the prospect of an inveterate anti-tax, pro-supply-side ideologue with high name recognition running for the Senate in the media capital of the world would be the equivalent of a massive jobs stimulus plan targeted directly at the beleaguered news business. There's also the fun to be had detailing how one man could so consistently be so wrong when discussing his supposed specialty: the economy” ….

Read the whole article here.   more »

It is human nature to think (hope) that grass may be greener in farther pastures. If you happen to be living in trauma centers like Darfur or Haiti, no doubt you would be right.

But if you happen to live in the developed world—ground zero for our generation’s credit crisis—there is little truth to support the hope. We have pretty much done the same dumb, over-levered things everywhere these past few years: politicians wanting to be popular adopted a unanimous and mistaken belief that increased home ownership on pretty much any terms was good. Bank heads believed that securitization made them genius magicians who could magnify zero equity into fabulous risk-free profits for all. The masses bought in; the debt and equity markets levered it up. Until suddenly (or so it seemed) in March 2007, people began stirring from the dream to discover we aren’t “richer than we think”, in fact we are collectively broke.

The past month a fresh spate of horror is sweeping the world as the extent of the European debt debacle unfolds...   more »

The trouble with most asset prices today is that they are quite simply inflated. The run up since March '09 means that many prices are over-shooting the reality of world demand by a significant margin at present. This chart of copper makes the point well:


Source: Bloomberg Finance L.P. via Ian Farrell

The nub of the matter is this. Even if you see some economic recovery ahead, prices have already discounted that and a good deal more. The anti-US dollar trade has been the catalyst for much of the price moves in risk assets the past several months. If the U dollar rebound continues for a bit, the threat of significant damage to stock and commodity prices should not be ignored.   more »

Thanks to repeated requests for service from US residents over the past couple of years, I am pleased to announce that my money management company Venable Park Investment Counsel Inc. is now registered with the SEC and happily accepting US clients. To any US readers that are interested or have contacted us in the past and were told no, please do drop me an email to discuss your needs.   more »

Neil Barofsky was interviewed by Dylan Ratigan tonight on MSNBC. Barofsky is going after the truth in the AIG debacle. He says civil and criminal prosecutions are in the pipeline and that he thinks there will be hand-cuffs coming for some. He also explains why Geithner's statements re tax payers being made whole on the AIG bail-out is untrue and misleading. This is the kind of truth seeking that must happen in order to fix this mess and assign blame where it is due. This is some of the most encouraging discussion I have heard so far. Ratigan keeps swinging for the truth in the maze of deceit. If enough people keep at this thing, we will finally get somewhere re the reforms and house cleaning needed.

Visit msnbc.com for breaking news, world news, and news about the economy

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